Samuel and Emma decided to start a business with their friends, Joanne and Ron. Their new company would provide landscaping design and installation, including sprinkler systems. Sam and Ron would handle the installation, Joanne was the designer, and Emma would handle day-to-day operations. However, as they started looking at business structures, they were stumped. They knew the difference between a hyacinth and hibiscus but didn’t know much about partnerships, limited liability companies, and corporations. They soon learned the pros and cons about each structure, especially limited liability companies.
Pros About Limited Liability Companies
Each business entity type offers benefits that meet a company’s needs. People who choose a limited liability company may enjoy:
- Limited Liability. Individual members are not personally liable for any of the company’s actions.
- Easy Startup. Forming an LLC typically is easier and less expensive than forming a corporation.
- Easy Maintenance. Fewer required reports make limited liability companies easier to maintain.
- Tax Considerations. Unlike other business entities, a limited liability company is not taxed. Instead, any profits pass to the members to be reported on their tax returns.
- Flexible Management Structure. Limited liability companies are free from many of the regulations and restrictions imposed on corporations and partnerships.
- Flexibility in Number of Owners. A limited liability company might have one member or an unlimited number of members.
As great as they sound, limited liability companies are not right for every situation.
And Some Cons
Disadvantages associated with limited liability companies are:
- Tax Considerations. Yes, tax is both a pro and a con. Members are required to pay self-employment tax on their earnings.
- Separation of Assets. Limited liability company owners must keep their business assets separate from their personal assets. Failing to do so could limit or remove the limited liability advantage.
- Loss of a Member. In some states, the limited liability company must dissolve if a member leaves for any reason.
It’s crucial to carefully weigh the pros and cons about limited liability companies before making a move.
Limited Liability Companies May Be the Solution …
… or the problem. Before starting any company, talk to a business lawyer.
Attorney Bruce Adams helps clients just like you with their legal needs. For a free consultation with an experienced Alabama attorney, contact us at 256-237-3339. Located in Anniston, we serve clients in Calhoun, Cleburne, Etowah, and St. Clair Counties.