LIMITED LIABILITY CORP: ADVANTAGES AND DISADVANTAGES AS BUSINESS ENTITY

2007-03-08 10:33:40

( Business )



American businessmen have the option to put up their businesses with the legal entity of a limited liability corporation. A limited liability corp is a legal form of business that combines the characteristics of a corporation and a partnership. It offers limited liability to its owners just like a corporation. On the other hand, it requires less paper works and owners’ meetings just like a partnership. It is known to have a flexible form of ownership suited for smaller businesses particularly in the number of owners required to manage the business.

Advantages

Absence of annual shareholders meeting, absence of loss of power to a board, enduring legal entities, less administrative work, no double taxation and assigned membership interests are the main advantages of a limited liability corp. Its advantages in terms of tax liability are considered the main benefits offered by limited liability corp. Owners can used default tax classification wherein profits will be taxed personally on the owners and not on the limited liability corp which makes it less costly. The corporation can elect to be taxed either as a sole proprietorship, a partnership or as a corporation which provides flexibility in terms of tax liability.

Owners of limited liability corp save money from tax breaks offered to such business entity and at the same time are not held liable for its debts in the event of bankruptcy. This flexibility in tax liability and ownership liability make limited liability corp an ideal business entity for smaller companies usually beset with ownership and financial problems.


Disadvantages

Franchise tax levied by most states is one of the disadvantages posed by limited liability corp. It serves as the payment of limited liability corp to the state for allowing its operation. The amount of franchise tax can be determined based on the amount of revenue, amount of profit or number of owners.

New businessmen who are not familiar with the operations of a limited liability corp might find it difficult managing such type of company. Also, the lack of implementing guidelines in its operations can also pose a problem in its management.

Businessmen considering a limited liability corporation must weigh the advantages and disadvantages in its operations and its impact on the bottom line which is return on investments for the owners. It is better to gather all the necessary information before registering your company as a limited liability corporation.


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