The Pros and Cons of Operating as an LLC

Many different kinds of business entities exist, each with its own benefits. When you are just starting a business, one of the most crucial decisions you will have to make is what kind of entity you should operate your business as. There are sole proprietorships, partnerships, corporations, S corporations, and finally, there is the limited liability company—otherwise known as the LLC.

An LLC can have one or more owners (aka “members”), and there is no limit to the amount of members it can have. The LLC structure is gaining popularity, and it is singularly the fastest growing business type above the others. Why is that so? And is it right for your business? In this blog, we explore the pros and cons of the LLC structure:

The Pros

  • Limited Liability. The members of an LLC are shielded from the liabilities of the company. That is, if you are a member, you cannot be held responsible (or “held liable”) by the business’s creditors. This is in comparison to, say, sole proprietorships, where the business’s liability is your own liability, so the business’s creditors can legally come after your personal assets.
  • Who Runs an LLC? With LLCs, the members can choose to operate the business and manage the day-to-day activities. The members can also choose managers to run the LLC. This kind of flexibility in management is not available with other entities.
  • Pass-Through Taxation. Perhaps the most convincing reason to operate as an LLC is something called pass-through taxation. This means that the profits the business makes go directly to its members. The government won’t tax the business and therefore decrease the amount you receive as a member. Rather, the government will just tax you on your federal income tax return. With other kinds of entities, you will have to pay taxes both as an owner of the business as well as on your income tax.

The Cons

  • Piercing the Corporate Veil. If you do not clearly separate your personal transactions from your business’s transactions and conduct your business according to certain criteria, you may still be held liable in court. This means that if a judge rules against you, then creditors can come after your personal assets.
  • Dissolving the Business. If a member of the LLC dies, leaves the business, or goes bankrupt, the remaining members will be liable for the remaining debts and legal obligations that are necessary to close up shop. If that happens, the remaining members can still run the business, but they then have to re-register a new LLC.

 

Contact Us

There are other nuances to consider about operating as an LLC in your state. That’s why you need to discuss whether an LLC is right for your business with an experienced and trusted business law attorney. Attorney John Espinosa is here to answer your questions and make sure you understand everything there is to know about LLCs and starting a business. Contact us here or call us at (978) 288-1468 today.

 

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John Espinosa, Esq.

John Espinosa helps entrepreneurs do business right by providing convenient access to quality legal advice and services, with more than 15 years experience in the legal field from multiple perspectives.

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