This is the third of a four-part series on Business Entities.
Limited Liability Corporations
The LLC is often described as a hybrid business form. It combines the liability protection of a corporation with the tax treatment and ease of administration of a partnership. As the name suggests, it offers liability protection to its owners from company debts and liabilities. Most of the laws governing this type of business were passed in the 1980’s and 1990’s in the United States.
The cost of setting up an LLC is roughly the same as setting up a corporation.
If the company grows too large for an LLC, it is easily converted to a corporation.
Advantages of the LLC
- LLCs do not require annual meetings and require few ongoing formalities
- Owners are protected from personal liability for company debts and obligations
- LLCs enjoy partnership-style, pass-through taxation, which is favorable to many small businesses
Disadvantages of the LLC
- LLCs do not have a reliable body of legal precedent to guide owners and managers, although LLC law is becoming more reliable
- An LLC is not an appropriate vehicle for businesses seeking to become public eventually or to raise money in the capital markets
- LLCs are more expensive to set up than are partnerships
- LLCs usually require annual fees and periodic filings with the state
- Some states do not allow the organization of LLCs for certain professional vocations
Next up: Corporations