Why LLCs sucks - ATG AdvisorsWhy LLCs sucks - ATG Advisors

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April 12, 2017

While LLC members are protected from some liability acts, including any debts piled up from the business, there are a lot of other things to take into consideration when starting up your business.

First, what is an LLC?

  • An LLC, or Limited Liability Company, An LLC is a flexible form of a business organization that includes all of the elements of a partnership with the fundamental characteristics of corporate structures.

So why is it a bad thing to be an LLC?

  • Taxes
    • According to the IRS, only 2 things are taxed: corporations and individuals. With a LLC you are individuals who get individually taxed for your company.
    • When tax season rolls around, it’s not your company that is going to be taxed, it’s you and all other members of the LLC on your personal tax returns, and it’s not capped at the corporate tax rate.
    • You also can’t pay yourself and you can’t take any advantages of unemployment. Therefore, a limited liability company owner may have to pay unemployment compensation for him or herself, which he or she would not have to pay as a sole proprietor. This means you would also have to pay Medicare and social security taxes.
  • It’s still YOU
    • For all intents and purposes, the LLC is still YOU.
    • LLCs are protected…to an extent. One big thing to take into consideration is that in order to start up your business, you may need to put up personal collateral for loans or may need to use personal credit cards that YOU personally are held responsible for paying off. Here are some other common mistakes to avoid when running your LLC:
    • Corporate formalities are NOT met
    • One or all of the members are mixing personal funds/business with company funds/business
    • If your annual fees are not paid or you don’t meet the guidelines, the government will dissolve the LLC and hold you liable for everything in your company.

**While LLCs suck, adding on an S-corp status on an LLC could help mitigate the pitfalls. With just an LLC, you have to completely pay self employment taxes in full (15.3%) BUT with an S-corp status, you don’t have to pay medicare taxes (2.9%) which leaves you with a lower rate. You can also pay yourself as an owner with this status and with the assistance of a professional accountant, you could find even more ways to save money.


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