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

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LLC paperwork on a desk with pen and other items.

Launching a new small business is an exciting yet nerve-wracking adventure. Where to start?! One of the first decisions you’ll need to make is the type of company to create that’s most beneficial for you. If you’re considering setting up a limited liability company (LLC), you’re in the right place.

When I wanted to create my own business, I thoroughly researched all of my options. It was time-consuming and confusing for sure. So I want to share what I’ve learned with you. I’ll break down everything you need to know about the pros and cons of an LLC to help you decide if this type of business structure is ideal for your situation.

The ultimate benefit of creating an LLC is that you can combine tax advantages with personal protection from company liabilities, but there are disadvantages as well, which I’ll explain. Furthermore, I’ll help clear up all the confusing requirements and necessary documents you’ll need should you decide that an LLC is your best option. I have some tips to make the process of creating your LLC as smooth as possible. However, one of the easiest and most cost-effective ways to create an LLC is through an online service.

What Is An LLC?

The U.S. Small Business Administration defines an 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.” This definition may be a bit confusing if you’re not familiar with all the legalities of differing U.S. business structures. But I’ll try to clear that up for you.

The first thing to keep in mind is that LLCs are governed by individual state laws, and membership and other requirements vary by each state. So it’s extremely important to check your state’s laws about LLCs. Still, LLCs in general share some similarities.

All LLCs are structured to have owners, which are officially called members. Most states don’t restrict who can be an owner so members may include individuals, corporations, other LLCs, and foreign entities, according to the Internal Revenue Service (IRS). There’s no limit to the number of owners, and most states also permit “single-member” LLCs, those with only one owner.

What Are the Benefits Of An LLC?

So, why choose to create an LLC? There are four 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. For example, if your LLC incurs debt or gets sued, 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. Potential tax advantages – Members have the option of structuring an LLC as a pass-through entity, meaning that all of the LLC’s profits go directly to members without being taxed as a separate business entity. Members report profits (and losses) on their personal federal tax returns. This can lower your tax burdens if your LLC loses money and makes filing taxes easier.
  3. 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.
  4. 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 are two key cons 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 deal with when closing 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.

6 Steps To Forming Your LLC

Although some details vary by state, these six 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.” Register your business name with your state.
  2. Designate a registered agent – Most states require a registered agent, a person who’s designated by members to accept legal documents and other official correspondence on behalf of your LLC. This can be you or a fellow member. However, the registered agent’s physical address will be part of the public record. For this reason, many LLCs choose to use a registered agent service.
  3. 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.
  4. Create an operating agreement – Although not required by some 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.
  5. Get an EIN – The IRS requires LLCs to have an employer identification number (EIN). You can easily apply for one on the IRS’s website.
  6. Open a bank account – You’ll need a separate bank account for your LLC. Why? Your LLC must be a separate entity from its owners — this is what gives you limited liability protection. If you mix business and personal finances, you could be at risk of losing this protection.

Save the time and hassle and create an LLC with ZenBusiness.

Expert Tip

Don’t forget to obtain any required licenses and permits for your LLC. 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.

How Much Does It Cost To Form And Maintain An LLC?

The cost to form and maintain an LLC can vary widely depending on your state and the assistance you choose to hire. If you DIY, your total cost will be the state filing fees and annual fees required by your state. Here are just a few examples of typical costs involved in the creation and maintenance of an LLC.

  • State filing fees: $35 to $500 or more, depending on your state.
  • Registered agent: $100 to $300
  • Operating agreement: $0 to $200
  • Attorney fees to form a simple LLC range from $1,000 to $1,500. Attorney costs can exceed $3,000 if you have a more complicated situation (i.e., multiple members, varying owner percentages, etc.)
  • A certified public accountant (CPA) can assist you in filling out the proper paperwork, although they can’t give you legal advice. Expect to pay a CPA anywhere from $500 to $1,000.
  • State annual LLC fees: $0 to $800
  • Annual reports: $0 to $800

What’s The Best Online Service To Create An LLC?

If you don’t have the time or don’t feel confident going the DIY route, I recommend creating an LLC online. It can save you hundreds and, in some cases, thousands of dollars. Fortunately, you have several reliable options that don’t charge an arm and a leg to launch your business. Here are my top recommendations.

Best Overall: ZenBusiness Review

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Visit ZenBusiness

My top choice for online LLC services is ZenBusiness for its wide variety of features, flexible packages, and competitive pricing. ZenBusiness gets thousands of overwhelmingly positive customer reviews for its services and customer support (and has an A rating from the Better Business Bureau).

ZenBusiness’s worry-free compliance ensures that you’re notified of any filing or compliance events, plus it covers your annual report and two business amendment filings per year. In addition to LLC services, ZenBusiness offers many other services you may need to launch and maintain your small business, including:

  • Business Planning: startup cost calculation, market research, licenses, permits, and government grants
  • Branding: logo design, domain registration, website building, and business emails
  • Taxes & Accounting: invoices/payments, accounting/bookkeeping, and small business tax tips


ZenBusiness offers three LLC packages. Plans are billed annually and do not include state filing fees. ZenBusiness’s starter is free for the first year; the plan renews at $199 annually. View all plans.

Price$0 $199$299
LLC FilingBlue checkmarkBlue checkmarkBlue checkmark
100% Accuracy GuaranteeBlue checkmarkBlue checkmarkBlue checkmark
Worry-Free Compliance1 year free, then $199/yearBlue checkmarkBlue checkmark
Registered Agent+199+199+199
Operating Agreement+$99Blue checkmarkBlue checkmark
Fastest Filing+$79Blue checkmarkBlue checkmark
Employer ID Number (EIN)+$99Blue checkmarkBlue checkmark
Business Document Templates+$99+$99Blue checkmark
Business Website Builder+$15/mo.+$15/mo.Blue checkmark
Domain Name With Privacy+$35/year+$35/yearBlue checkmark
Business Email Address+$25/year+$25/yearBlue checkmark

Best For Legal Services: Rocket Lawyer Review

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Read Review | Visit Website

The one downside with ZenBusiness is that they don’t offer legal services. If that’s something you’re looking for, I recommend using Rocket Lawyer for your LLC formation needs. With Rocket Lawyer’s membership, you pay $39.99 per month, which includes LLC document preparation and filing, free consultations with an attorney, discounted registered agent services, and discounted compliance services.

But membership also includes a wide variety of other legal document creation and access to attorneys which your new business may need. Rocket Lawyer also offers a non-member LLC filing package for a one-time fee of $99. If you don’t need legal services, ZenBusiness is more affordable and offers more business services.

What’s The Best Online Legal Service Provider For Personal And Business Needs?

Do you need other online legal services? Check out our online legal services comparison to learn about all the legal services from various providers. Many of our top recommendations combine business and personal needs for a low cost.

Why are you considering forming your LLC online? Have any other questions? Ask us in our comments.

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The information provided through this website should not be used to diagnose or treat a health problem or disease; it is not intended to offer any legal opinion or advice or a substitute for professional safety advice or professional care. Please consult your health care provider, attorney, or product manual for professional advice. Products and services reviewed are provided by third parties; we are not responsible in any way for them, nor do we guarantee their functionality, utility, safety, or reliability. Our content is for educational purposes only.

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