At MLG Business Litigation Group, our business formation attorneys in Florida and California understand that starting a company is not a one-size-fits-all endeavor. This is why business start-ups should consider their formation options carefully before finalizing their business structure.
In some cases, formalizing a business structure as a Limited Liability Corporation, or LLC, is advantageous. In others, it may not be the best choice. Here are the pros and cons of LLC formations, so you can make informed decisions about your company’s structure before you get started.
What is a Limited Liability Corporation (LLC)?
A limited liability corporation (LLC) is a business structure that combines pass-through taxation — like a sole proprietorship or partnership would — with the limited liability of a corporation.
Although not technically a corporation, LLC provides personal financial protection and limited liability to its owners.
What are the Pros and Cons of Forming an LLC?
Depending on the type of business you are in, there are many positive attributes to starting your company as an LLC.
- The flexibility of being taxed as a sole proprietor, partnership, S corporation, or C corporation.
- Less paperwork and lower filing costs.
- An LLC can include as little as one person but can also have an unlimited number of members.
- Flow-through income taxation, keeping things simple.
- Members are protected from some, typically all, liability if the company runs into legal issues or financial trouble.
- Members can receive revenues, and write off forfeitures, which may be larger than their individual ownership percentage.
Like most business decisions, some consequences must be weighed when determining whether to structure a business as an LLC.
- LLC members cannot pay themselves wages.
- Potentially higher renewal fees or publication requirements.
- Franchise or capital values tax, ranging from a flat fee to an amount based on the company’s revenue, depending on the state.
- Lack of financial capital, as investors may be more likely to put their money into a corporation.
- The ownership of the business is spread across its members when there is more than one partner.
If you are unsure which type of entity formation structure is right for your business, contact our MLG Business Litigation Group attorneys in Florida and California today at (786) 706-9228 to schedule a free initial consultation.