by Cindy del Rio, Negosentro.com |
Entrepreneurs have many types of business structures to choose from, but over the years, the Limited Liability Company (LLC) has taken the lead. Combining some elements of a sole proprietorship and some elements of a corporation, the LLC has always been a logical option for many entrepreneurs. However, before you decide to form an LLC, it is important to weigh the pros and the cons.
Pros of LLCs
Limited liability: Just as the title suggests, the LLC protects its owners and shareholders from personal liability in case of any debts against the business.
Shared responsibility: The LLC is a type of business that allows two partners to share the management responsibility equally. As such, they are able to make the most of their abilities and take on equal shares of business tasks.
Easier decision making: When two partners share the decision making, they are able to assist one another whenever need arises. Together they can share ideas and solve any arising problems.
Flexibility: An LLC company is easier to form, manage and run. It is not strictly regulated and has flexible governing laws. Because the shareholders do not interfere in the running of the business, the company is easy to manage as long as the partners are in agreement.
Doesn’t need much startup capital: Every successful business start-up requires a sufficient amount of capital to get it off the ground. With an LLC, not many startup costs are needed and pretty much anybody can start an LLC on a few dollars.
Cons of LLCs
Difficulties in raising money: LLC businesses don’t have as strict a structure as corporations, therefore, investors may be hesitant to put in money in order to grow the business or further some company projects.
Taxes and official forms are only handled by agents: Every year, the state government sends all official tax and legal documents to an LLC registered agent. These documents include annual forms and notices among others. Once the LLC registered agent receives them and fails to perform the proper functions, then it will have dire consequences for the business as a whole.
Payment of extra taxes: While other business structures are not affected by this, in many states, the LLCs are required to pay additional taxes such as franchise taxes or capital values taxes.
Partners do not receive any wages: If you are part of the LLC, you are not allowed to pay yourself wages. This is because the bottom-line profit of the LLC is considered earned income thus subjected to self-employment tax.
Any Limited Liability Company comes with its advantages and disadvantages, so you should always take them into consideration before you set up such a company. There are many benefits of LLCs, therefore, it’s worth giving a thought. If some of these cons are deal breakers then maybe this is not the best structure option for you. Make sure that you weigh the pros and cons of each business structure before you make your decision.