A limited liability company (LLC) is a business structure that combines the pass-through taxation of a partnership for US federal income tax purposes with the limited liability of a corporation.
Although LLCs have some attractive features, they can also present a number of disadvantages to startup company founders in relation to a corporation, such as:
- unwillingness on the part of most institutional VCs to invest in LLCs,
- less standardization of LLC formation documents, which can drive up the cost of documenting the formation and organization of an LLC and
- more complicated employee equity structures, which can drive up the cost of issuing employee equity and make it more difficult for employees to understand the nature of their interest in the company.