There are many different business structures that may suit your entrepreneurial needs, and most countries offer the options of starting a business as a sole proprietorship, partnership, or corporation. But in the US, there is another option, called the Limited Liability Company (or LLC for short), which combines some of the benefits of all the other options.
What Is A Limited Liability Company?
A Limited Liability Company is a business structure authorized for use in certain US states that allows both the owners and managers to have only limited liability for the financial aspects of the business (mostly tax benefits), while incorporating some of the perks of running an S corporation. An LLC is not a corporation however, even though some entrepreneurs (mistakenly) call this business structure a Limited Liability Corporation. Additionally, owners are called members, and there can be an infinite number of them.
The Benefits Of A Limited Liability Company
Running an LLC has several benefits over sole proprietorships, partnerships and/or corporations. They are:
- Limited Liability: like the title says, an LLC offers is members limited liability for all financial decisions. The only way to waive this is to have the member sign a document personally guaranteeing the money they've invested into the business;
- Flexible Profit Options: Unlike the S Corporation which has a 50/0 profit split, LLCs can pick and choose the type of profit structure that works best for their organization;
- No Need For Minute Taking: S Corporations require all meetings to have minutes recorded and filed, and all resolutions registered. An LLC gets away with having to do neither, thus reducing administrative time (although many LLCs do anyway);
- Tax Benefits: By having an LLC, all profits and losses move through the corporation and into the members' hands, thus avoiding any sort of double taxation issues (where both the corporation and the individual are taxed on the same amount).
The Drawbacks Of A Limited Liability Company
Like any business structure, there are drawbacks to every option. The drawbacks to a limited liability company are:
- Finite Timeline: Corporations can live forever, but LLCs only live as long as all of the members are still alive and don't declare bankruptcy;
- Unable To Go Public: Unlike a corporation, limited liability companies cannot take their businesses public;
- More Complex: A sole proprietorship is the most basic of business structures, and even a partnership is less challenging to run than an LLC. However, an LCC (as explained previously) has less paperwork to manage than a corporation.
For More Information About Business Structures...
Think a Limited Liability Company isn't the right business structure for your entrepreneurial venture? Then take a peek at the pros and cons of sole proprietorships, partnerships, and corporations.
Bonny Albo - Bonny offers 20 years of writing experience to her readers. CNN, MSNBC, The LA Times and Macleans all reference her for expert advice.
