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The Pros and Cons of an LLC

When you’re starting up a new business, it’s fortunate that Florida’s Division of Corporations provides you with many options. The downside is that, with multiple choices, it can be difficult to figure out which one is right for you. One organization type that’s become popular in recent years is the Limited Liability Company (LLC), which many stakeholders choose because it can protect their individual assets. However, there are some subtleties and legal issues that you need to understand before moving forward. A Clearwater business formation lawyer can explain in more detail, but you can also check out some pros and cons of LLCs.

PRO: Limited Liability: The LLC is a separate legal entity for purposes of company obligations, so members – i.e., owners – cannot be held personally liable. You can protect your home, autos, investments, bank accounts, and other assets if creditors come calling. Your property is also safe in the event of a lawsuit against the LLC.

CON: Not FULL Limited Liability: It’s a misconception that you can always protect your personal property through an LLC. You could put your assets at risk of you “pierce the corporate veil,” which means failing to keep the business separate from your own personal interests. In business litigation, a judge could set aside the LLC and hold members responsible.

PRO: Pass-Through for Purposes of Taxes: LLCs can avoid the double taxation that may apply to certain corporations because there’s only one taxable event: The members report profits and losses on their own individual income tax returns. There’s no separate tax liability for the LLC because these amounts pass through to the stakeholders.

CON: Self-Employment for Members: Unless you opt for the LLC to be taxed as a corporation, the IRS treats the company as a partnership. Therefore, when you work for the LLC, you’re considered to be self-employed. You’re individually responsible self-employment taxes and withholdings, including Social Security and Medicare.

PRO: Flexibility in Operations and Management: An LLC is relatively maintenance-free with respect to certain formalities. You can choose to be managed by members, which means all owners can share in routine decision making and day-to-day operations. In addition, the process of starting up and maintaining an LLC in compliance with Florida law is straightforward. It’s possible to complete the necessary paperwork without legal expertise, though you should still consult with a business formation lawyer.

CON: Less Structure Can Lead to Disputes: While many members enjoy the lack of formal structure with an LLC, these freedoms can also lead to disputes. Still, these con is easy to overcome if stakeholders execute a thorough, meticulous Operating Agreement regarding management, ownership, decision making, and other details related to running the business.

Discuss Formation Options with a Clearwater Business Law Attorney

Our team at Clearwater Business Law has extensive experience representing Florida business owners throughout Pinellas County, so we have the in-depth legal knowledge you need regarding the pros and cons of an LLC. To learn more about various business formations, please contact us at (727) 785-5100 to schedule a consultation with a skilled Florida business lawyer.