If you are in the process of selecting a business structure for your new business, you may be considering making your business a limited liability company (LLC).
There are many advantages to registering your business as an LLC, but there are also a few disadvantages to consider.
An LLC is essentially a combination of a partnership and a corporation. Some of the benefits of an LLC include:
- Flexibility: An LLC allows for flexibility in many areas, including investing, profit sharing, and taxation.
- Easy to form: An LLC requires less paperwork and fewer costs than other business structures. Under Indiana Code 23-18-2-4, you will be required to file an “Articles of Organization” document with the Secretary of State, which will contain basic information about the business. You are also encouraged, albeit not required, to create an operating agreement which will specify how the business will be run.
- Operational freedom: An LLC allows you to choose either a member-managed or manager-managed structure. There is no need for a board of directors or annual shareholder meetings.
- Liability protections: There is legal separation between you and the LLC. In other words, your personal assets are protected and will not be used to pay off business debts.
- Pass-through taxation: An LLC does not have to be subjected to double taxation the way a traditional corporation is. Instead, profits of the business will be passed through to the owners’ individual tax returns and owners will pay taxes on these profits on their personal tax returns.
While there are several advantages to starting an LLC, there are also a few disadvantages. It can be difficult to transfer ownership, as all members must generally approve of any changes.
An LLC can also be costly to create and may be subjected to fees. It is important to thoroughly research Indiana business law before deciding on a structure for your business.
