This week and next week we’re going to discuss some things business owners should consider when trying to choose an entity for their business. We’ll look at the benefits and disadvantages of becoming an LLC LLP and Corporation.
First up here are some pros and cons of Limited Liability Companies (LLC).
Limited Liability Companies are emerging as a popular structure for firms for the mere fact that it is simple and easy to set up. LLCs provide flexible taxation options while allowing the benefits of liability protection.
A huge benefit of the LLC is that it offers the option of “pass-through” taxation which allows profits to pass through to the owners so the LLC itself doesn’t have to pay taxes on the profits. An LLC has the ability to file federal income tax returns as a sole proprietorship partnership or corporation. There is no need to hold annual meetings or submit minutes which is convenient for members and saves time and resources.
However an LLC needs to have bylaws or a specific operating agreement to avoid losing liability protection. State laws are also the most limiting to LLCs in that certain states do not allow licensed professionals to form professional limited liability companies. Certain states rule that when a member of the LLC dies the LLC itself risks dissolution. And because the LLC is still so new many state laws are regularly being amended. Banks and investors may prefer to invest in a corporation which is an older and more traditional entity with which they would be more familiar.