What Are The Pros And Cons Of An LLC (Limited Liability Corporation)?

Man on computer writing at desk: How to set up an llc onlineStarting a limited liability company (LLC) is an exciting but nerve-wracking adventure. Our small business legal expert breaks things down into laymen’s terms for you.

One of the most important items you’ll need to address is finalizing the legality of your new venture. Navigating the necessary documents and other confusing requirements can be a chore, but which is why it’s nice to be in the 21st century where the whole process can be done online.

First, we’ll give you some background information about the benefits of an LLC and what you need to do to form an LLC if you’re still not sure which type of business to create.

Article Overview

LLCs: Some Background

The U.S. Small Business Administration defines a limited liability company (LLC) as

a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.

Members of an LLC (the owners) can be a single individual, two or more people, other LLCs or even corporations. However, membership varies by state, so be sure to check your state laws.

The government doesn’t tax LLCs as separate business entities like they do with shareholders in a corporation. Instead, all of the LLC’s profits and losses are “passed through” to each LLC member. Members report these profits and losses on their personal federal tax returns (similar to a partnership).

What Are the Benefits Of An LLC?

So, why choose to create an LLC? There are three key advantages to an LLC:

  1. Limited Liability – As an LLC member, you have legal protection from personal liability for many of the business’s operations. If your LLC incurs debt or gets sued, for example, your personal assets are usually exempt. But be advised that this is limited liability. You don’t necessarily get legal protection from wrongful acts, including actions your employees may take.
  2. Time and Cost Savings – One of the greatest benefits of an LLC is operational ease. An LLC involves less record-keeping and lower start-up costs compared to an S-Corporation.
  3. Profit Sharing – LLCs aren’t as regulated with the distribution of profits as other legal structures are. It’s largely up to you and your fellow members to determine who has earned what percentage of the profits or losses.

Are There Downsides To An LLC?

Just like with any corporate or member-based structure, there are cons. Here’s two key ones for an LLC:

  1. Limited Life – Many states require an LLC to dissolve if a member leaves the LLC, leaving you with all the legal and business ramifications to close your business. However, you can include provisions in your LLC operating agreement to keep the LLC alive if a member leaves.
  2. Self-Employment Taxes – As an LLC member, you’re legally considered self-employed and must pay self-employment tax contributions towards Social Security and Medicare. The LLC’s entire net income is subject to this tax.

5 Steps To Forming Your LLCRocket Lawyer logo

Although some details vary by state, these five general requirements apply to all LLCs:

  1. Choose a Business Name – You must follow three rules regarding your LLC name: (1) it must differ from an existing LLC in your state, (2) your name must include that it’s an LLC, and (3) it can’t include certain words restricted by your state, such as “insurance” or “bank.” When you register your business with your state, your business name automatically gets registered.
  2. File the Articles of Organization – An “articles of organization” is a simple document that includes your business name, names of your LLC’s members, address, and other necessary information. In most states, you file with the Secretary of State. But check your state requirements as filing location can differ from state to state.
  3. Create an Operating Agreement – Although not required by many states, an operating agreement is an essential part of most LLCs. This agreement structures your finances, rules and regulations for your business. For a multi-member LLC, an operating agreement spells out the allocation of profits and losses, the percentage of interests, members’ responsibilities and other provisions.
  4. Obtain Licenses and Permits – Once you register your business, you’re required to obtain certain federal and state business licenses and permits. Requirements vary by your industry, state and locality. Check with your state’s business filing office to know which licenses and permits you’re required to obtain.
  5. Announce Your Business – Some states require the added step of publishing an announcement about your LLC formation in your local newspaper. Check with your state’s business filing office to see if this is a requirement.

Save time and create an LLC with Rocket Lawyer.

How Much Does It Cost To Form An LLC?

Three typical costs involved in the creation of an LLC are:

  1. State filing fees can run anywhere from $50 to $1,000 or more, depending on your state.
  2. Attorney fees to form a simple LLC range from $500 to $3,000. Attorney costs can exceed $5,000 if you have a more complicated situation (i.e., multiple members, varying owner percentages, etc.)
  3. A certified public accountant (CPA) can assist you in filling out the proper paperwork, although he can’t give you legal advice. Expect to pay a CPA anywhere from $500 to $1,000.

How can I save in start-up costs? Online legal services are an excellent option if you don’t want to budget for expensive attorneys or a CPA. They have licensed attorneys and tax professionals on staff but are able to offer legal services at a discount because of their low overhead and automated offering.

How Can I Create An LLC Online?

Create an LLC with Rocket Lawyer

Creating an LLC online can save you hundreds and, in many cases, thousands of dollars. We recommend going through Rocket Lawyer. Why? They are one of the most well-known brand names when it comes to online legal services, and they’ve been around for years.

Customers rave about Rocket Lawyer’s LLC services, and the process is as easy as it gets. The website prompts you through a series of questions, and it automatically inputs your answers into Rocket Lawyers’ LLC Operating Agreement Template and Articles of Organization Template. The questionnaire takes only 10 or 15 minutes to complete.

What Are the Benefits Of Using Rocket Lawyer?

One of the benefits of using Rocket Lawyer is the help you get along the way. If you get stuck, you always have the option of calling a customer support agent.

Are Rocket Lawyers’ LLC Services Worth It?

Rocket Lawyer has two options: pay for a monthly membership and get access to most legal products and services or pay as you go.

  • Premium Member: $39.99/month for Premium Plan (includes 30-minute consultation, answers to legal questions, incorporation filing, creating documents online, discounts on additional services, and more)
  • Non-Member: Pay a la carte for services: $39.99 per document creation, $49.99 per legal question, $59.99 per 30-minute consultation, $99.99 for incorporation filing, etc.

These prices are from the time of publishing and may change over time.

Who’s The Best Online Legal Service Provider?

Do you need other online legal services? Check out our online legal services comparison to learn about all the legal services from various providers.

Are you considering forming your LLC online?

Tagged With:

About The Author

Notify of
Oldest Most voted
Inline Feedbacks
View all comments