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Pros and Cons of Limited Liability Companies

Pros and Cons of Limited Liability Companies

If you are a sole proprietor and desire to take your business to the next level, forming a limited liability company is the best option. It will allow you to raise capital and still run your business as your own and see it flourish. Running an LLC like any other business has its pros and cons too, and as an entrepreneur, it is paramount to know beforehand what you are getting into. However, an LLC has more benefits than downsides. The good news is you can form an LLC without so much hassle by hiring a formation service.

Below are the pros and cons of starting an LLC:

Pros

Limited Liability for Members

Limited liability protects members from being held personally liable due to company actions and moves. This means that shareholders and the LLC are separate entities, so their personal properties are protected. For example, when a creditor is collecting company debts or when the company has a lawsuit against it, the members’ assets are safe.

Fewer Formalities

less paperworkUnlike corporations, which are required by law to hold meetings and regularly document every discussed issue, the law is lenient on LLC. The LLC law does not require a regular meeting with members, neither does it press on documentation of minutes discussed.This reduces paperwork and allows easier business running since there is no much consultation needed as long as you abide by law and agreement when carrying out business.

No Limitations on Membership

There are no limitations on the number of members; you can have more than 100 members on your members’ board. Shareholders can be citizens or non-citizen of the United States. Corporations require shareholders to be not more than 100 and must be natural citizens of the US. The law also allows shareholders of an LLC to place interest in a trust.

Enjoy Flexible Taxation

flexible taxationAn LLC allows its members to enjoy profits without being taxed by the government as a corporation. Members receive tax-free profit from the LLC and only pay tax individually.

Cons

Members May Carry Other Members’ Burdens

Most states require the LLC to be dissolved if a member dies or declares bankruptcy. Even though the LLC can still run but this is after dissolution and starting afresh with new regulations.

Limited Liability Protection May Be Overturned

A court can overturn the limited liability protection, and members declared liable for LLC’s action. This normally happens if you don’t separate business from personal transactions.…