Limited liability corporations (LLC) are a popular option for those seeking to start a business. As a simple and inexpensive option, it’s easy to see their appeal. An LLC, however, isn’t for everyone. Here are the pros and cons of establishing an LLC.
The Benefits of Forming an LLC
Perhaps the most significant benefit of an LLC is the limited liability it offers. In an LLC, the members of the company aren’t held personally liable for the actions of said company. What this means is that in the event of a bankruptcy, liquidation, or other severe financial circumstance, the members of the company will be safe from the seizure of their personal assets by creditors.
LLCs also offer significant tax benefits over other forms of business structures. Unless otherwise stipulated, LLCs operate as a pass-through entity, meaning the profits from the company go directly to the members, without taxation by the government. This process allows taxation of profits to occur on the members’ income tax returns rather than the corporate returns.
Finally, LLCs offer significant flexibility and up-keep for members. These entities are easy to set-up, easy to run and offer the flexibility members need to protect themselves personally while also reaping tremendous benefit. LLCs, for example, can be set-up with any number of members, meaning they can be owned by a few partners or other established LLCs in a multi-layered company. This flexibility makes LLC especially popular in the real estate, pharmaceutical, and retail industries.
The Drawbacks of Forming an LLC
Despite the impressive benefits they offer, LLCs do have some drawbacks which require consideration. For example, while these entities provide significant protection, they do not protect members completely. If, for example, members do not adequately separate their business interests from their personal interests, a judge may rule that the LLC does not protect a member’s personal assets. This action is known as “piercing the corporate veil,” and can prove costly.
Additionally, while LLCs offer significant tax benefits, there are other concerns for members to contemplate. The IRS considers LLCs to be the same as partnerships for tax purposes – meaning members are considered self-employed. This tax status means that members are personally responsible for paying all Social Security and Medicare taxes, which adds an extra burden and more tax forms to deal with.
Contact the Corporate Law Experts at Eskander Loshak Today
If you are considering forming an LLC, having a knowledgeable corporate and business law partner on your side goes a long way.
At Eskander Loshak, our firm has a combined 15 years of experience in all facets of corporate and business law. We provide our clients with the tailored representation they need to help get the business results they are looking for. We are well-versed in all aspects of business and corporate law and can provide you with the assistance you need to succeed. So, if you are looking for a corporate law firm as dedicated to your success as you are, call Eskander Loshak today at (954) 334-1122.