The limited liability company (LLC) is one of the most popular business entities among emerging businesses. It blends characteristics of a partnership and corporation, without all of the formalities that come with forming a corporation. It makes a lot of sense for many new businesses. However, just because the LLC is popular does not always mean it is the best choice for a business startup.
The Strengths And Weaknesses of A Limited Liability Company
The limited liability part is what makes a limited liability company most desirable to many business owners. An LLC offers the individual owner a level of protection against personal liability for judgments and debts.
LLCs also offer a great deal of flexibility in terms of management structure in comparison to a corporation, and come with fewer compliance issues. LLCs also offer flexibility in terms of taxation, because it can choose to be taxed like a sole proprietorship, a partnership or a corporation.
Protection and flexibility are just two of the key advantages of an LLC.
The LLC also comes with some disadvantages, including:
The relaxed structural requirements may actually lead to challenges in new businesses that would benefit from a more formal structure. This may also lead to problems getting investors, who may prefer to see a more formal structure as well.
While there are tax benefits, there is also an extra burden because Texas requires most LLCs to pay an additional state franchise tax.
The Strengths And Weaknesses Of An LLC Vary From Business To Business
The reality is that what may prove to be a strength of an LLC to one business may prove to be a weakness to another. The LLC has strengths and weaknesses that must be carefully considered in relation to the nature of the business, the industry, the competition and the business’s goals. This is why it can be valuable for new businesses to work closely with an experienced attorney who will review the business and provide carefully considered guidance in the business entity selection process.