Limited Liability Company Advantages and Disadvantages
Choosing the correct business structure is vital to your business. The following are advantages and disadvantages of forming a Limited Liability Company (LLC). LLC’s are a new form of business entity. The first LLC act in the United States was in the State of Wyoming in 1977. In 1980 the IRS issued a private ruling indicating it would treat the LLC for tax purposes as a partnership. how to register a DBA in Texas
LLCs provide limited protection to members by reducing personal liability. The members are not personally responsible for debits and liabilities of the company. Creditors cannot pursue members’ personal assets (i.e., home or vehicle) to pay business debts.
LLC’s can be taxed in several ways – as a pass-through entity, partnership, or corporation.
An LLC is a “pass-through” entity – meaning the LLC has no tax; it is passed through to the members.
Forming of an LLC is flexible. An LLC may be formed as an entity to appear as a partnership or as a corporation depending on the preferences and requirements of the person creating the business.
Easy management style, the compliance requirements for an LLC are less formal compared to a corporation.
Because the LLC is a separate entity, a new and separate credit profile that is distinct from a personal credit profile.
Having the “LLC” as part of your company names improves the creditability of your company with vendors, partners, and potential customers.
Ease of transferring ownership.
An LLC is not restricted to a maximum number of stockholders.
LLCs attract investors easier than a sole proprietorship.
Limited Liability Company – disadvantages
Along with advantages associated with the creation of a Limited Liability Company (LLC), there are disadvantages. Disadvantages associated with an LLC are as follows:
LLCs are still a new option in many states. Wyoming and Florida were the only states that had LLC structures in place prior to 1990. Because this is a relatively new option, the establishment of LLC is still evolving and there is very little case history in courts.
In some states LLC have a limited lifespan – not to exceed 30 years.
Interstate business is more complicated. Laws governing LLCs may vary widely from state to state. An LLC must be formed to each state where a company does business. Each state requires forms completed specifically for their state. Each state requires filing fees for forming an LLC. These fees vary from state to state. Filing fees range in price from $50 to $500.