Limited Liability Company; A Viable Alternative?

Answer 1

A limited liability company, otherwise known as an LLC, is a kind of business that is best described as a hybrid of corporate structure and a lower liability partnership. Limited liability does not mean that in all cases the owners of the company are not liable for the actions of the company; in certain cases, especially those involving misrepresentation of the nature of a companies primary characteristics, a LLC can be forced by a court to have its head partners held accountable for certain actions. However, for the most part a LLC is a good option for reducing liability, as it is not, technically, a corporation, but shares many similarities with it. In this way, a limited liability company can avoid certain forms of income tax and legal attacks.

Limited liability companies, for most interested parties, are a consideration precisely because the founder can incur debts and liabilities on behalf of the company without a personal risk of being considered a target by creditors. This allows a business to perhaps take more risks than would otherwise be possible, allowing a greater control and breadth over potential market concentration. It also reduces a degree of paperwork; a LLC, unlike a true corporation, does not have meeting requirements or place limits on the nature of its ownership.

While forming a limited liability company is a completely serviceable option for many new and experienced entrepreneurs, statutory provisions can make it difficult to raise starting capital in many situations. The unfortunate reality is that LLCs are not a type of company that is well established among investors, and many scoff at the credibility of an entity that is not a full fledged corporation. Being by nature a middle ground, a LLC is, however, at a slight advantage in comparison to a sole proprietorship in efforts to attract investors.

Limited Liability Companies have several tax related drawbacks. Many states demand annual fees for LLC registration, in many places exceeding 400$. The margin tax is especially burdensome on newly formed companies, imposing a fee for every instance of apportionment undertaken by the LLC in question. This can in some cases be avoided by modifying your LLC registration to conform to PLLC standards, especially viable if your business offers a specific service to clients. This option has the side effect of not offering liability exclusion for malpractice, so its use should be carefully considered.