An LLC partnership is an extremely flexible and form of partnership in which the owners are called “members” and they’re subject to very limited, or no, liability. All of the
profits, losses, as well as the managerial duties are shared amongst the partners of the company. An LLC is set up so each partner is personally protected against the negligence of others in the partnerships. Owners of LLC partnerships have the option of being taxed as a corporation or having pass-through taxation. In pass through taxation, profits are passed on to the owners who then pay taxes rather than having the LLC pay taxes and then having the owners also pay (you get to avoid double taxation!).
All of the business partners in LLC partnerships are called members. There is no limitation as to who can become a member. Individuals, corporations, and even foreign entities can become members of an LLC. There is not a minimum number of members required, and in most U.S. states, single-member LLCs are allowed.
Regarding the biggest advantage (limited liability), members do not personally share any legal or financial liability for any debts or legal action the LLC may face.
There are a few disadvantages to forming an LLC. For example, pass through taxation (a strategy that can prevent double taxation), may be limited to LLCs that have at least two members. Also, if you are not in a partnership and are the only owner, an operating agreement may be required in some states to ensure that the LLC is in fact more than just a sole proprietorship. LLC partnerships also tend to cost more to setup and maintain than a general partnership.
In general, though it’s my opinion that it’s probably the most appropriate legal entity you should be creating if you are a part of a traditional small business
with 1 or more partners. Even if you are the only member, due to the liability protection that an LLC provides, the advantages far outweigh the disadvantages.
What are some of the advantages and disadvantages of LLCs that you’ve dealt with over the years? I’d love to hear what
you have to say so please post a comment below!
The information contained here is not intended to be professional or legal advice in regards to your business. I’m an entrepreneur, not a lawyer. Please consult your lawyer or accountant.