A limited liability company (or shorter LLC), like a joint-stock company, is a capital company, and a flexible one, if observed from the perspective of management. However, unlike the first one, which is a school example of the capital one with all its basic characteristics, LLC is different and it’s one of the most commonly used forms of organizing business entities in our economy.
In case this sounds a little bit unclear, let us put it this way. On one side there’s an entrepreneur as a natural person who performs activities for profit and who’s responsible for the obligations arising from the business of the object with which it’s connected. That could be a shop, a hairdresser studio, a law office, a doctor’s office, a car repair shop, or any similar type of place. On the other hand, when it comes to LLC, as well as other forms of business, economic activity is performed only by a firm that has the status of a legal entity. Here the property of the owner and their responsibility is separated from the property and liabilities of LLC.
This leads us to the fact that an LLC has its own assets with which it’s liable for its obligations. Only when it comes to a partnership or limited partnership, the owner and his personal property are in charge of the obligations that the firm has undertaken in legal transactions.
To clarify this even more, here’s the list of pros and cons of establishing it.
Let’s start with the advantages.
1. There’s no double taxation
Everything that the company owns and has acquired is treated by the law of the state as the income of the individuals who participate in its management. This, in that case, represents a kind of benefit, since in this way, by creating an LLC, the possibility of double taxation on the amounts and funds earned by the firm is eliminated. Unfortunately, this isn’t the case with a corporation, where this can’t be avoided so easily. The fee is divided into certain amounts that must be paid by the members themselves as personal income tax.
2. Higher business volume
Furthermore, It’s quite important to note that the establishment of a unit like this enables the achievement of certain goals that exceed the capabilities of the individual. That means that there are more things to do than in the other case and it’s necessary to unite people and property to raise more capital in order to be able to bear it. So, the more work to do, the better, as it’s also beneficial for the purpose of performing certain economic activities which can be done only within a firm and not by an entrepreneur. This includes bank issues, insurance organizations, broker-dealer matters, and so on.
3. More freedom regarding the management
First of all, it’s much easier to found a unit like this – there’s less hassle. When a corporation is founded, it’s mostly tense and there’s a whole list of things that must be taken care of – the thing is constantly on the move and doesn’t allow any breaks and rest. This is a relief because the LLC doesn’t require such a high level of engagement. Of course, it’s necessary to make an effort to make everything work in a valid way, but compared to the other solution, it’s quite insignificant and inferior. Election of executives, directors, and senior positions, a bunch of mandatory and necessary meetings… all this belongs to the range of activities that aren’t obligatory here. This automatically affects the relief and helps to create a business strategy without hindrance.
4. No restrictions regarding the number of stockholders
If you understand at least a little bit about the way a corporation works, then you may know that in many situations the number of people who come into consideration as shareholders are limited. This means that you can’t set the desired number of members if it exceeds the limits prescribed by law. There are no restrictions or limits in the LLC related to this aspect, but the number of people we desire can be included in any case. Apart from this restriction, there are no prohibitions concerning the nationality of the shareholders or other conditions that firms need to respect. So… a few things to think about.
Here we could also mention benefits like good control of members, the cash method availability (not included in the regular company), loss deduction possibility and so many more things that make management easier to bear.
However, each and every way of doing business has its advantages, but also a few disadvantages indeed. It’s time to hear a couple of those not so perfect sides of this establishment.
1. More effort in order to raise the capital required
It’s crucial to be aware of the fact that there aren’t many ways to increase the capital of an LLC – the possibilities here are actually rather limited. Finding an investor who’ll be willing to put some money into it is a strenuous job since it requires a lot of paperwork and somewhat more complex processes. Therefore, the only thing left is to sell shares or ask for a bank loan – not too many choices, right? And even these feasible options have their drawbacks that might harm the unit and worsen its performance. So, if you have this kind of company in mind, be aware of this point.
2. Its existence depends on the member’s presence
Here we come to another problem – limited business lifespan. Since there are several stockholders and each one of them owns a certain amount of shares in the company and participates in the management, they’re also a holder of part of the responsibility. The moment one of them is no longer able to perform that function wants to retire or dies, the company itself shuts down and can no longer operate. In very rare cases, it’s possible to transfer ownership to another person, but this happens very rarely due to numerous restrictions in this domain, and in that situation, a corporation is a better option.
3. Different rules in different countries
There may be a law in your country that covers certain parts of the business, but it doesn’t necessarily mean that the same rules apply in the neighboring country, as well as in all others in the world. So, before you decide to deal with this, you must thoroughly research and study the law that regulates such issues in the country in which you intend to do business. This includes the way the LCC is managed, but also many other crucial points that should by no means be excluded from the whole story. All the natural persons who have any doubts regarding this might wish to hire a specific service of the experts who’ll be able to advise further regarding the laws and the procedure. Anyone who wants to click here will be able to check out some of the most prominent and appropriate services available.
4. More complicated registration procedure
In the end, anyone who wants to do a certain job in this way must have resilient nerves and be ready for a lot of paperwork and a somewhat complex process. The registration of such a company is on many levels and in many ways more difficult, time-consuming, and exhausting than it’s the case with others. In addition, the costs are higher, and you need to be prepared to give up a certain amount of cash in order to do it properly.