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What are the risks and benefits of forming an LLC?

One of the main advantages of forming an LLC is in the filing of taxes. Unlike several other corporate entities, the taxes for an LLC are much easier since it isn’t taxed as a separate entity. Instead, the profits and losses are claimed on the personal tax returns of the members of the LLC. Additionally, you can have as many LLC members as you’d like. Each member would be entitled to claim a portion of the profits and the losses, but those portions do not have to be equal to their ownership interests. Another great advantage is that members of the LLC do not have personal liability for the LLC. So, if you’re concerned about the liquidation of personal assets or personal liability, LLC is a good choice. Finally, it is relatively easy to setup and maintain.

Now, as far as disadvantages, let’s start with setting up the LLC. It is generally more expensive than other corporate formations. It also has a limited term. You’re going to have to renew it or it will be dissolved. If you plan on issuing stock or selling stock, this can’t be done with an LLC. In order to make management easier, you should make sure that you have a custom operating agreement prepared. Your agreement needs to conform with the laws in your state. Finally, if you want to be able to transfer the ownership of your part of the LLC, you could find that to be a bit difficult.

Ultimately, you need to think about:

– Taxes

– Personal liability

– Price

– Life span of the business

– Whether you want to issue or sell stock

– Whether it is possible that you’ll want to transfer your portion of ownership

If you’re not sure that an LLC is the right business formation for you or if you’d like some help with forming your LLC, LawTrades is a marketplace of lawyers who can help you at an affordable rate. We’ve helped thousands of small businesses get started on their journey and we’d love to answer any questions you have about the process.


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