What Types of Businesses Should Choose an LLC?

An LLC is the right choice for 80% of small business owners. But how do you know if an LLC is right for you?

In most cases, business owners who don’t plan on raising investment money, need asset protection, or need flexible business management and taxes should file an LLC.

This is the case whether you’re a sole proprietor, partnership, or have multiple members.

The reason for this is LLCs give the same limited liability protection of assets as a corporation, without the complications.

At UberBusiness, we see business owners from all walks forming LLCs – real estate agents, personal trainers, marketing agencies, influencers, eBay sellers, financial advisors, and more. LLCs provide the perfect structure for a wide variety of business.

That said, there are some businesses that are not allowed to form an LLC.

Which businesses cannot file an LLC?

In general, banks, financial trust companies, and insurance companies are blocked from filing as LLCs. Other times, certain states block businesses in certain industries from filing LLC.

To see the LLC eligibility for your state, go here (THIS SHOULD BE A LINK)

This said, LLC filing is the right fit for 80% of small businesses.

The Pros & Cons of LLCs

Many business owners file for LLCs due to the many benefits that come with doing so. But, there are also a few drawbacks that come with filing LLCs. Let’s dig into them one by one.

Pros

Asset Protection
When you form an LLC, you separate your assets from those of the business. That means only the LLC is responsible for debts and liabilities of the business. The only liability the members of the LLC have is the personal interest they have invested in the company. This keeps their personal assets protected.

Pass-Through Taxation
Another big benefit LLCs is pass-through taxation. Pass-through taxation means the LLC does not pay taxes for itself. Instead, the owners of the LLC are responsible for the taxes on their personal income tax.

Lack of Ownership Restrictions
LLCs do not come with residency or citizenship restrictions. This means those outside the US, or those without US citizenship can have stake in an LLC.

Flexible Tax Status
By default, an LLC is taxed as a partnership or sole proprietorship. However, LLCs may choose to be taxed as a C or S-corporation at any time.

Versatile Profit Distribution
LLCs do not require income or profits to be allocated to members based on ownership percentage. This means profit mayy be allocated in different proportions to ownership percentage. This is in contrast to corporations where profits must be distributed in proportion to the percentage of ownership of each shareholder.

Minimal Compliance Requirements

Filing requirements and other formalities are relatively lax when it comes to LLCs. LLCs are not required to have annual meetings, adopt bylaws, or make documentations.

Cons

Self Employment Taxes
Pass-Through Taxation can also be seen as a drawback to filing an LLC. Many times, taxes that are reported as personal iincome taxes of LLC members are higher than the taxes at corporate level. 

Separate Records
LLC owners need to keep business records separate from personal finances. This means having separate bank accounts and cards to track business expenses.

LLC Termination
In most cases, if an LLC member departs, the LLC is terminated.

Banking

As mentioned above, owning an LLC means keeping financial records separate. That also means opening a business checking account. 

Business accounts usually charge a number of different fees and expenses for these accounts.

Additionally, if a check is made out to your LLC, you must deposit it into your business account. Some banks charge extra for these types of deposits.

What Are The Requirements for Filing an LLC

LLCs drop a lot of the complexities of owning a corporation. They are not required to hold annual meetings. They aren’t subject to the complex record-keeping of corporations either. However, there are certain requirements you should be mindful of:

Operating Agreements

Operating agreements are the governing documents of LLCs. In this document, members lay out the imporant standards for their LLC, ownership details, and rules surrounding membership flexibility.).

Operating agreements are not recorded with the state, which means they are agreements among the members and owners.

Filing Annual Reports

In many states, LLCs must file annual reports. Failing to do so usually results in the business being dissolved. 

 Domestic LLC

Domestic LLCs are formed and operated in your state. In these cases, the state governs your LLC.

Foreign LLC

Foreign LLCs operate in a different state than the state it was formed in. This does not include LLCs that are formed internationally.

Member-Managed LLC

Member-Managed LLCs are LLCs in which all the members operate the business equally. This is the most common type of LLC.

LLCs in which business partners remain passive should consider manager-managed LLCs. In this type of LLC, members or nonmembers can be selected as “manager”.

Single-Member LLC

This is an LLC with only one member.

Multiple-Member LLC

Multiple-member LLCs have multiple members. This creates some complexity, as multi-member LLCs must be thoughtful while creating the Operating Agreement.

Series LLC

Series LLCs act as a master LLC over number of separate legal entities. These entities can be members, assets, managers, or interests. Series LLCs are only an option in Delaware, Iowa, Illinois, Oklahoma, Nevada, Texas, Tennessee, and Utah.

Restricted LLCs

Restricted LLCs are currently only available in Nevada. Restricted LLCs cannot make business distributions among members until 10 years after forming their LLC.

L3C

L3C companies combine the legal and tax versatility of an LLC, the branding and marketing advantages of a social enterprise, and the social benefits of a nonprofit.

Anonymous LLC

An anonymous LLC is where the ownership details of the LLC is not made public by the state the LLC is registered. New Mexico is one of the only states that allows for truly anonymous LLCs.

What Types of Businesses Should Choose an LLC?

An LLC is the right choice for 80% of small business owners. But how do you know if an LLC is right for you?

In most cases, business owners who don’t plan on raising investment money, need asset protection, or need flexible business management and taxes should file an LLC.

This is the case whether you’re a sole proprietor, partnership, or have multiple members.

The reason for this is LLCs give the same limited liability protection of assets as a corporation, without the complications.

At UberBusiness, we see business owners from all walks forming LLCs – real estate agents, personal trainers, marketing agencies, influencers, eBay sellers, financial advisors, and more. LLCs provide the perfect structure for a wide variety of business.

That said, there are some businesses that are not allowed to form an LLC.

Which businesses cannot file an LLC?

In general, banks, financial trust companies, and insurance companies are blocked from filing as LLCs. Other times, certain states block businesses in certain industries from filing LLC.

To see the LLC eligibility for your state, go here (THIS SHOULD BE A LINK)

This said, LLC filing is the right fit for 80% of small businesses.

The Pros & Cons of LLCs

Many business owners file for LLCs due to the many benefits that come with doing so. But, there are also a few drawbacks that come with filing LLCs. Let’s dig into them one by one.

Pros

Asset Protection
When you form an LLC, you separate your assets from those of the business. That means only the LLC is responsible for debts and liabilities of the business. The only liability the members of the LLC have is the personal interest they have invested in the company. This keeps their personal assets protected.

Pass-Through Taxation
Another big benefit LLCs is pass-through taxation. Pass-through taxation means the LLC does not pay taxes for itself. Instead, the owners of the LLC are responsible for the taxes on their personal income tax.

Lack of Ownership Restrictions
LLCs do not come with residency or citizenship restrictions. This means those outside the US, or those without US citizenship can have stake in an LLC.

Flexible Tax Status
By default, an LLC is taxed as a partnership or sole proprietorship. However, LLCs may choose to be taxed as a C or S-corporation at any time.

Versatile Profit Distribution
LLCs do not require income or profits to be allocated to members based on ownership percentage. This means profit mayy be allocated in different proportions to ownership percentage. This is in contrast to corporations where profits must be distributed in proportion to the percentage of ownership of each shareholder.

Minimal Compliance Requirements

Filing requirements and other formalities are relatively lax when it comes to LLCs. LLCs are not required to have annual meetings, adopt bylaws, or make documentations.

Cons

Self Employment Taxes
Pass-Through Taxation can also be seen as a drawback to filing an LLC. Many times, taxes that are reported as personal iincome taxes of LLC members are higher than the taxes at corporate level. 

Separate Records
LLC owners need to keep business records separate from personal finances. This means having separate bank accounts and cards to track business expenses.

LLC Termination
In most cases, if an LLC member departs, the LLC is terminated.

Banking

As mentioned above, owning an LLC means keeping financial records separate. That also means opening a business checking account. 

Business accounts usually charge a number of different fees and expenses for these accounts.

Additionally, if a check is made out to your LLC, you must deposit it into your business account. Some banks charge extra for these types of deposits.

What Are The Requirements for Filing an LLC

LLCs drop a lot of the complexities of owning a corporation. They are not required to hold annual meetings. They aren’t subject to the complex record-keeping of corporations either. However, there are certain requirements you should be mindful of:

Operating Agreements

Operating agreements are the governing documents of LLCs. In this document, members lay out the imporant standards for their LLC, ownership details, and rules surrounding membership flexibility.).

Operating agreements are not recorded with the state, which means they are agreements among the members and owners.

Filing Annual Reports

In many states, LLCs must file annual reports. Failing to do so usually results in the business being dissolved. 

 Domestic LLC

Domestic LLCs are formed and operated in your state. In these cases, the state governs your LLC.

Foreign LLC

Foreign LLCs operate in a different state than the state it was formed in. This does not include LLCs that are formed internationally.

Member-Managed LLC

Member-Managed LLCs are LLCs in which all the members operate the business equally. This is the most common type of LLC.

LLCs in which business partners remain passive should consider manager-managed LLCs. In this type of LLC, members or nonmembers can be selected as “manager”.

Single-Member LLC

This is an LLC with only one member.

Multiple-Member LLC

Multiple-member LLCs have multiple members. This creates some complexity, as multi-member LLCs must be thoughtful while creating the Operating Agreement.

Series LLC

Series LLCs act as a master LLC over number of separate legal entities. These entities can be members, assets, managers, or interests. Series LLCs are only an option in Delaware, Iowa, Illinois, Oklahoma, Nevada, Texas, Tennessee, and Utah.

Restricted LLCs

Restricted LLCs are currently only available in Nevada. Restricted LLCs cannot make business distributions among members until 10 years after forming their LLC.

L3C

L3C companies combine the legal and tax versatility of an LLC, the branding and marketing advantages of a social enterprise, and the social benefits of a nonprofit.

Anonymous LLC

An anonymous LLC is where the ownership details of the LLC is not made public by the state the LLC is registered. New Mexico is one of the only states that allows for truly anonymous LLCs.