Choosing the best business entity for your business is an important decision. When seeking an attorney to help with your business, you should make sure the attorney considers all of your goals and all potential risks. A business entity that is becoming increasingly popular is the limited liability company (LLC). Below are a few of the considerations of choosing an LLC for your business type.
Advantages of an LLC
- Less Risk of Personal Liability – One of the major reasons why people choose an LLC is because there is less risk of personal liability. If you own a sole proprietorship or a partnership, you are at risk of being responsible for not only debts of the business, but also legal actions. Having an LLC can shield you from both. An LLC is treated as separate from the owners. What does this mean for a business owner? Well, it means that an owner will not be personally liable for the debts or other liabilities of a business. For example, if there is a slip and fall accident on the premises of your business, and your business is sued, only the business would be liable for any damages. The owner’s personal wealth would not be reachable (with a few exceptions).
- Tax Flexibility – One of the major benefits of an LLC is its tax flexibility. Corporations are generally subject to double taxation. LLCs are subject to what is known as pass-through taxation. Pass-through taxation allows an owner to elect to have the company’s earnings and losses pass through to the owners of the LLC. The owners are then taxed at their individual tax rate. This can result in lower taxes than if taxed like a corporation. Alternatively, owners of an LLC can also choose to be taxed as a corporation as well.
- Fewer Formalities – An LLC does not require a board of directors or corporate minutes as a corporation does which can make it easier to operate the business in some instances. (It may still best to follow certain practices such as documenting major decisions, and holding member meetings.)
Disadvantages of an LLC
- Transfer of Ownership – Depending on the terms of the operating agreement (if there is one at all) it may be harder to transfer an ownership interest in the LLC.
- Less Attractive to Investors – An LLC creates certain tax consequences that may make investing in an LLC unattractive to some investors. Likewise, the potential difficulty in liquidating their ownership interest may not be appealing for the investor looking to make a quick return.
Above are just some of the pros and cons of an LLC. If you are considering forming an LLC, contact an experienced business attorney at Mosaic Law Firm. Our Orlando business attorneys and Washington DC business attorneys are here to help you determine the best entity for your business.