{"id":5651,"date":"2020-04-10T00:00:00","date_gmt":"2020-04-10T00:00:00","guid":{"rendered":"http:\/\/www-staging.carta.com\/sg\/blog\/what-is-llc\/"},"modified":"2021-03-05T06:55:54","modified_gmt":"2021-03-05T06:55:54","slug":"what-is-llc","status":"publish","type":"post","link":"https:\/\/www-staging.carta.com\/sg\/blog\/what-is-llc\/","title":{"rendered":"What is an LLC and how can they structure their equity programs?"},"content":{"rendered":"\r\n

One of the most popular business structures is the LLC, which stands for limited liability company<\/a>. Many entrepreneurs incorporate as LLCs to separate their personal and business finances, but there are other, more tangible advantages, too.\u00a0<\/p>\r\n\r\n\r\n\r\n

When you form an LLC, you get taxed like a sole proprietor or partnership while receiving the liability protection of a corporation. Plus, there\u2019s flexibility with the set-up. You can be a sole owner or one of multiple owners (also called members).\u00a0<\/p>\r\n\r\n\r\n\r\n

If you\u2019re considering incorporating as an LLC, keep reading to learn more about the benefits, types, and equity options to see what makes the most sense for you.\u00a0<\/p>\r\n\r\n\r\n\r\n

What are the advantages and disadvantages of an LLC?<\/h2>\r\n\r\n\r\n\r\n
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Advantages<\/th>Disadvantages<\/th><\/tr>\n<\/thead>\n

Easy to form:<\/b> Every state<\/span><\/a> has different requirements and incorporation fees, but in general, the process is fairly straightforward and doesn\u2019t require a lot of paperwork.\u00a0

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Personal liability protection:<\/b> Unlike a sole proprietorship, an LLC offers business owners limited liability protection for business debts. That means creditors can\u2019t go after your personal assets\u2014like your home or car\u2014if your business defaults on a loan or faces a lawsuit.\u00a0

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Flexible management structure and profit sharing:<\/b> Members of an LLC can either oversee the company, manage operations, and make decisions themselves, or hire outside parties to take on those roles. LLC members also have flexibility when divvying up the company\u2019s profits.\u00a0

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Flexible tax reporting:<\/b> You can choose how you want to be taxed. The most common option is the pass-through method, where business profits go directly to LLC members without being taxed as a corporation. However, you can also <\/span>make a C-corp or S-corp election<\/span><\/a>, which means you\u2019ll be taxed as a corporation but may get certain advantages when filing.\u00a0<\/span><\/p><\/td>

Self-employment taxes: <\/b>The IRS looks at LLCs like partnerships or sole proprietorships in terms of taxes. If you choose the pass-through method, you\u2019re technically considered self-employed, which means you have to pay social security and medicare taxes based on your business\u2019s net earnings.\u00a0

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Can be difficult to raise money from investors: <\/b>LLCs are a riskier choice for venture capitalists, so you may be limited in the amount of money you can raise from outside investors. Most investors prefer to put their money into C-corporations, which generally have more options for <\/span>liquidity<\/span><\/a> and more straightforward tax reporting.\u00a0

<\/span><\/p>Incorporation costs and annual fees:<\/b> Depending on the state you file in, you may have to pay anywhere from $50 to $500 to incorporate as an LLC. Plus, you have to pay annual filing fees to keep your business current. The fees vary by state, so make sure to check your state\u2019s <\/span>Secretary of State<\/span><\/a> website. <\/span><\/td> <\/tr>\n <\/tbody>\n <\/table>\n