There are many options available to the small business owner, when considering the best way to drive business forward. Over recent years, many have turned to setting up a Limited Liability Company, (LLC). Is starting an LLC going to be the right move for your company however?
An LLC is similar to a corporation, in that as a separate legal entity, the liability is limited to all members involved. In most states, LLCs can be created by a single person. This is not the case with many other corporate structures. However, it is not limited to the number of people that may join, and is also able to be affiliated with other businesses.
Another benefit that LLCs provide is that they are free of many of the legal bureaucracy that governs other structures. For example, there is no need for annual reports. LLCs also allow for tax returns to be filed by the individual member, rather than being solely linked to the business itself.
Unlike more traditional corporate structures, dividends are paid out according to those who complete the most work for the LLC. In this way, even if you are a relatively small stakeholder, your slice of the profits will be larger if you contribute more to the profits generated.
Of course there are also disadvantages to starting an LLC. You may find it more difficult to raise funding: Some investors feel more comfortable putting a stake in more established corporations that could offer future public share offers, thus increasing their stake value.
Disadvantages also could play out if you want to operate in multiple states. Many states have different rules for operating an LLC, and impose running fees and franchise taxes. Be careful to check each states law, before expanding, or costs could outweigh potential revenue streams.
