Forming a business as a Limited Liability Company (LLC) is a popular option among business owners, and for many good reasons. LLCs combine some of the best elements of corporations, partnerships, and sole proprietorship, including providing some of the same protection a corporation offers. However, it’s important to understand both the advantages and disadvantages of LLCs when deciding how to form your business.

Pros of LLCs:
In general, LLCs can be more flexible and allow business owners to create a structure for their business that suits their requirements. As the name indicates, LLCs provided some protection from liability in case of judgments or debts against the business. There are more tax options and fewer compliance issues. LLCs also allow for flexibility for having investors who have little or no say in the daily business operations.

Cons of LLCs:
Taxes can be an issue for LLCs. Many states, including Texas, require LLCs to pay a franchise tax. Aside from that, LLCs incur “pass-through” taxation, where profits and losses are reported on each owner’s or shareholder’s individual tax return, even if they don’t receive dividends. In addition, the flexibility of LLCs can also become a disadvantage if detailed operating arrangements aren’t in place, which can lead to problems down the road.

Be sure to do your research and speak to your attorney about the advantages and disadvantages of different business structures to ensure that your business gets off on the right foot and is set up for success in the future.