Jul 6, 2016

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Pros And Cons of a Limited Liability Company

Choosing the right business structure is an important business decisions that entrepreneurs would have to make. One of the most common choices is a limited liability company or LLC. For companies with one to three owners, it is the perfect choice. According to the website of Slater Pugh, Ltd, LLP, these types of company combines elements of a partnership and corporation. Here is a guide on the advantages and disadvantages of a limited liability company.

Advantages

  • A limited liability company provides protection to the owner against a possible lawsuit. Compared to a sole proprietor, the owner of an LLC is regarded as a separate entity from the company. This means that creditors cannot seize the owner’s personal assets.
  • With LLC, owners can deduct health insurance premiums on an income tax return.
  • Unlike C or S corporations, LLCs offer less paper works. This makes an LLC easier to form and maintain in good standing.

Disadvantages

  • In an LLC, profits earned are only taxed at the company level. Owners of the company pay taxes on profits on their personal income tax returns.
  • Unlike corporations, there is no definite role in an LLC. This can create confusion as to who will sign contracts.
  • However, this can be remedied with the creation of an LLC Operating Agreement.
  • If one of the owners of the LLC leaves, the company’s existence will cease to exist. Again, owners can remedy this with an LLC Operating Agreement.
  • While there are fringe benefits in an LLC, such are treated as taxable income. Employees of a C Corporation also receive fringe benefits but it is not reported as taxable income.

Knowing the advantages and disadvantages of a limited liability company can help you decide whether it is the right business structure for your company. It is always best to consult the experts when deciding on the business structure you want.

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