The Pros and Cons of Choosing an L.L.C.

 A Limited Liability Company (LLC) is a flexible form of organizing your business. It has two main benefits: partnership tax treatment and corporate limited liability.

1. PROS:

Generally speaking, a limited liability company (LLC) is a great choice for a small start-up business that wants to keep the business’s financial and managerial structure simple.

  • Limited Liability of the owners of the LLC similar to a corporation. The owners of a LLC are called members.
  • Conversion to a LLC from an existing unincorporated business is relatively easy.
  • Flexible Management structure so that the LLC can either be member-managed or manager-managed.
  • Pass-through Tax Treatment, which means a LLC can elect to be treated as a partnership for tax purposes. Unlike a corporation, there is no double taxation, and the members can “pass through” profits and losses.
  • Joint Ventures may find a LLC more attractive because there would be no need for a venturer to create a special-purpose corporation, yet he would have the added benefits of limited liability and pass-through taxation.

2. CONS: LLC cannot do any of the following:

  • Cannot be Publicly Traded, or a LLC will lose its partnership tax treatment.
  • Cannot be converted into an Incorporated Business,  unless the members are prepared for the conversion to cause a taxable event.
  • Cannot practice a profession
  • Cannot be formed by a business subject to a regulated industry.
  • Cannot exist perpetually.
  • Cannot be freely transferred.

I personally believe that the LLC PROS vastly outweigh the CONS for a small start-up company. Start with a solid business plan and that will help guide your decision-making. You should consult with a business attorney before plunging ahead.

by Attorney Judith Elaine Hoover on 07/20/11