A limited liability company is a specific type of business entity or structure. It’s often referred to as an “LLC.” The main benefits of the entity are that it provides business owners with liability protection, a flexible management structure, and certain tax advantages.
What are the Key Features of an LLC?
There are three important aspects to a limited liability company. The first is that it can have one or more owners, often referred to as “members.” These members have the option to either:
- Participate equally in the management of the business, or
- Choose a “manager management” type of structure.
Manager-managed means that the members of the LLC can appoint one or more managers to run the day-to-day operations of the business.
LLCs enjoy limited liability. This means that all of the members are protected from personal liability for business debts and claims. So, for example, if an LLC can’t pay a creditor, the creditor can’t legally try to come after a member’s house or other personal possessions or property. The creditor can try to take action against the LLC itself, but not the owners of the business.
As to tax implications, unlike many corporations, a limited liability company is not considered separate from its owners. An LLC is rather thought of as a “pass-through entity.” Pass-through means that business income passes through the business to the LLC members, and the members report their share of profits (or losses) on their individual income tax returns.
What are the Main Benefits of an LLC?
There are several benefits to structuring your business as an LLC. Perhaps the most important include:
- Limited liability: LLC members are generally not personally liable for any debts incurred by the LLC or under any lawsuits filed against it.
- Pass-through taxation: A member’s business profits or losses pass through the company to the member’s personal tax return.
- Management options: LLCs can be managed either by their members or the members can designate one or more managers to run the business.
- Flexibility in ownership: There are generally no limits as to the number of members that can be part of an LLC. You can have only one member, a dozen, or hundreds.
- Simple to form and operate: A limited liability company is easy to form (you can usually do it online) and the entity does not require formal operators like officers and directors.
What are Some Disadvantages to an LLC?
Most business attorneys and commentators cite two main disadvantages to a limited liability company. The first relates to cost. There are filing fees to form an LLC and there are also annual fees and taxes to the state that you must pay. In general, it typically costs more money to form and operate an LLC in comparison to a sole-proprietorship or a partnership.
The second drawback to a limited liability company is that it’s generally not ideal for owners who wish to pursue outside investors. Such investors typically only seek to fund corporations. This is because corporations can issue stock in exchange for an investor’s money.
Contact The McWilliams Law Group for Help
When you are ready to open a new business or take your current business to the next level, the lawyers at The McWilliams Law Group are here to help. We can help ensure that your operations provide you with the tax and liability protections that best fit your short- and long-term plans. Our attorneys work closely with business owners throughout Washington and California, providing individualized and strategic advice to help their businesses run smoothly. Contact us now and get the skilled business advice that you deserve.
