Pros and Cons of Forming a Limited Liability Company (LLC)

Pros and Cons of Forming a Limited Liability Company (LLC)

Richard Fonfrias, J.D.
Chicago’s Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC


Anyone in business – whether a new business or in a sole proprietorship or general partnership – needs to protect themselves from liability. Today, no one can predict when a customer, employee or vendor might drop a lawsuit on you. Sometimes they do it to get money from you. Other times they do it to improve their leverage or bargaining position.

Regardless of why they sue you, you need to protect yourself and your family from justified and unjustified lawsuits. That’s where a limited liability company (LLC) comes in. And while many business owners think LLCs are expensive and chew up a lot of time, these are simply misconceptions. They’re not true.

Let’s weigh the positives and negatives.

First, the positives:
You benefit by protecting your assets. LLCs protect you and any other owners from being personally liable for your company’s debts and liabilities. If your business is a sole proprietorship or general partnership, the business’s creditors can go after both the business’s assets and your personal assets because the business and you are considered as one. On the other hand, if your business is an LLC, creditors cannot access your personal assets – such as your bank accounts or your home – to pay the company’s bills.

You benefit from not paying taxes through your LLC. Your LLC’s profits or losses are passed through to you and other owners so you report them on your personal income tax returns. And if you owe taxes, you pay them from your personal account.

You benefit from increased credibility. When customers and employees see that you are an LLC, it improves how they view your business. They see you as a “real company”. You are no longer looked upon as a one-person show or a mom-and-pop shop.

You benefit from less governmental paperwork. You may know that corporations have ongoing meeting and reporting requirements, which LLCs do not have. You won’t face near the paperwork or scrutiny when you form an LLC instead of a corporation.

You decide how your company is managed. Corporations have legally required structures, including boards of directors and officers. But when you operate as an LLC, you don’t have these requirements, so you and other owners decide how you want to manage the company.

You benefit from almost no restrictions. Almost any one person or group of persons can own an LLC, which is different with S corporations.

Now, the possible negatives:
You will have costs to set up an LLC, like hiring a lawyer, as well as ongoing expenses. While these costs are low, it’s even cheaper to operate as a sole proprietor or general partnership. Different states have different requirements and costs, so you need to look at what is required by your state. A few states require that a notice be published in local newspapers when an LLC is formed. You will find it harder to add new owners or change ownership shares with an LLC. Corporations can easily accommodate new owners by selling shares of stock. But with an LLC, all current owners must approve of ownership additions or changes.

You have fewer court decisions relating to LLCs. Corporations have been around a very long time so courts have handled and decided many cases relating to corporations. Since LLCs are relatively new, you have fewer decisions to review to see how courts could decide an issue.

Your safest advice is to talk with a lawyer who practices law in the state where you want to form an LLC. And, of course, you’re always welcome to call me. If you have any questions about setting up an LLC in Illinois, need further information about corporations or incorporating a business in Illinois, I will be happy to speak with you. Please send your questions to , or call 312-969-073, to arrange for a, initial free consultation.