Dingo Creative recently became an LLC. We did extensive research to find out if this was the best way to go for a small company such as ours. Finally deciding on an LLC, we are happy with our choice and want to share with you some of the pros and cons of a limited liability corporation. Better known as an LLC, it is a business structure that combines pass-through taxation (like in a partnership or sole proprietorship) with the limited liability of a corporation. An LLC is not a corporation – it is a legal form of a company that provides protection and limited liability to its owners.
PROS AND CONS OF LIMITED LIABILITY CORPORATIONS (LLC)
With the limited liability characteristics of a corporation and the convenience of a flow-through income taxation (where the income of the business is filed as part of the owner’s personal income and not taxed separately), this option is suitable for multiple ownership circumstances.
PROS.
You have the flexibility of being taxed as a sole proprietor, partnership, S corporation or C corporation.
Less paperwork and lower filing costs.
You can also have an unlimited number of members.
Flow-through income taxation, keeping things simple.
Members are protected from some (or sometimes all) liability if the company runs into legal issues or debts.
Members can receive revenues (and write off forfeitures) that are larger than their individual ownership percentage.
CONS
High renewal fees or publication requirements can be pricey, depending on your state.
Many states have a franchise or capital values tax on LLC’s, ranging from a flat fee to an amount based on the company’s revenue.
Investors may be more likely to put their money into a corporation, making it harder to raise financial capital.
The ownership of the business is spread across its members (this can also be a pro).