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Why would I choose an LLC

On Behalf of | Feb 25, 2016 | Firm News

This is a great question, I run my own business and I am on the only employee, why do I need an LLC?

In one word, protection!  You own a business, you run a company, why are you treating it like a hobby?  Businesses work hard to grow and develop there business, why would you want to risk all your hard work on liability?

Whether you are just starting your business or have been operating as a sole proprietorship or general partnership, you may be wondering about the benefits of incorporating your business as a Limited Liability Company or LLC.  Many business owners assume it will be too costly or time-consuming—but neither is the case.

LLC Benefits

The benefits of creating an LLC typically outweigh any perceived disadvantages and are typically unavailable to sole proprietorships and general partnerships.

  • Protect your Assets, obviously!  LLCs provide limited liability protection to their owners, who are typically not personally responsible for the business debts and liabilities of the LLC. Creditors cannot pursue the personal assets (house, savings accounts, etc.) of the owners to pay business debts. Conversely, in a sole proprietorship or general partnership, owners and the business are legally considered the same—leaving personal assets vulnerable.
  • Give me that tax benefit!  LLCs typically do not pay taxes at the business level. Any business income or loss is “passed-through” to owners and reported on their personal income tax returns. Any tax due is paid at the individual level.
  • I’m a business, really! . Forming an LLC may help a new business establish credibility with potential customers, employees, vendors and partners because they see you have made a formal commitment to your business.
  • I don’t like paper work. . LLCs face fewer state-imposed annual requirements and ongoing formalities than S and C Corporations. 
  • I want to run my business my way.  LLCs are free to establish any organizational structure agreed upon by the company owners. LLCs can be managed by the owners (members) or by managers, unlike corporations which have a board of directors who oversee the major business decisions of the company and officers who manage the day-to-day affairs.
  • Few restrictions. There are few restrictions on who can be an LLC owner or how many owners an LLC may have (unlike S corporations).

Potential LLC Disadvantages

LLCs may have some potential disadvantages, including:

  • Formation and ongoing expenses. To form an LLC, Articles of Organization must be filed with the state and the applicable state filing fees paid. Many states impose ongoing fees, such as annual report and/or franchise tax fees. While these fees often are not very expensive for small businesses, LLC formation is more expensive than that of a sole proprietorship or general partnership, both of which are not required to file formation documents with the state. A few states, such as New York and Arizona, also require LLC owners to publish notice of the LLC formation in local newspapers for several weeks. This can be costly.
  • Transferable ownership. Ownership in an LLC is often harder to transfer than with a corporation. With corporations, shares of stock can be sold to increase ownership. Typically with LLCs, all owners must approve adding new owners or altering the ownership percentages of existing owners.
  • Less precedent. Because the LLC is a newer type of business structure, there is not as much case law or legal precedent for LLCs as there is for corporations.
This is just a small list of the pros and cons of an LLC.  Contact Murphy Reed Law to discuss the best benefit for your business.