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The Pros and Cons of Growing a Limited Liability Company

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Anyone planning to put up a small business should take a step back and consider their options, especially if they only have a limited amount of resources. One way to push through with such a decision is by looking to build a Limited Liability Company (LLC).

Keep in mind that, just like all things, forming an LLC to make your dreams of owning a start-up business come true has its ups and downs. Before you pour all your hard-earned savings into your plan, you may need to assess your situation and determine if this is really the right move to make for your venture.

Keep reading below to find out the pros and cons of having a Limited Liability Company.

The Pros of Owning a Limited Liability Company

When it comes to running a large corporation, it’s necessary to schedule meetings with the board of directors, shareholders, and partners regularly. But when it comes to owning an LLC, you will be working with fewer corporate policies, leading to lesser meetings. As a result, employees can manage their time better and do not have to deal with too much paperwork.

With an LLC, you don’t have to answer to ownership restrictions, particularly regarding the number of members the company can accommodate. If you want to hire professionals that aren’t residents or citizens of the US, you are free to do so as long as they abide by the laws and gain the proper documents!

Besides that, if you want to find a way to keep a closer track of your company’s cash flow, you are free to apply the cash method and hire an accountant to manage it accordingly. The process involves acquiring income first before considering it as part of the business’ profit.

For those worried about spending a considerable portion of their company’s savings on paying taxes, it’s vital to know that with an LLC, you can benefit from tax flexibility. That way, it can help you stay away from paying for double taxation! As the owner, you are not obliged to answer unemployment insurance taxes by taking money out of your own income.

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The Cons of Putting Up a Limited Liability Company

When dealing with the profits your LLC acquires, they may have to answer to social security and medicare taxes. Depending on your situation, owners might even have to address more taxes than what an owner of a regular corporation usually faces.

Regarding employee salaries and profits, they may involve self-employment taxes, unlike corporations that solely deal with salary taxes. If your start-up company doesn’t make too much revenue, it will take a toll on your salary management unless you seek a business accountant for help.

Moreover, it’s a business owner’s responsibility to acknowledge profits right away, as compared to C-corporations that are not required to divide their earnings to their shareholders. Since you don’t have to face double-taxation for your LLC, you can immediately add the profits you earn to a member’s income.

Unfortunately, you and your employees can expect to receive fewer fringe benefits with an LLC, including group insurance, medical insurance, medical reimbursement plans, and parking fees. Instead, each of you will have to treat them as taxable income.

Conclusion

Before you make the big decision of starting a Limited Liability Company, it’s best to understand what it takes to invest in a business that has its own fair share of benefits and drawbacks. It will help to ask advice from an accounting company so that you can figure out if an LLC is the right solution given your circumstance.

Are you looking for a small business accounting service to help you manage your company? FiBrick is an accounting firm providing an array of services catering to start-ups and scale-ups. Get in touch with us today to schedule a consultation!

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