There are also some disadvantages to an LLC:
Pass-through taxes: Although LLCs do not deal with the “double taxation” faced by a corporation, they do incur “pass-through” taxation, meaning that profits and losses are reported on each owner’s or shareholder’s individual tax return, whether or not the shareholders receive dividends. Because of that, the LLC may be more suited to a one-person owner situation, as shareholders may not appreciate pass-through taxation.
Raising money: Because of the lack of a strict corporate structure and the pass-through taxation, investors may be hesitant about putting their money into an LLC.
Additional taxes: Many states, such as California, New York, and Texas, to name a few, require LLCs to pay a franchise tax or “capital values tax.”
Less structure: The lack of strict requirements for governing the business could mean problems down the road unless a detailed operating agreement is in place, which requires additional upfront costs such as attorney fees.