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Is an LLC right for your new business?

Choosing an entity type for your new business demands careful consideration. Undoubtedly, your fellow entrepreneurs and others might share with you that a limited liability company gives you the best options. Well, it's true that LLCs offer many benefits, but they also come with limitations that could cause you to make a different choice.

The only way you can know for sure requires you to understand the pros and cons of forming a limited liability company. Knowing how the choice of an LLC will help shape your business will help you make an informed decision.

What's good about an LLC?

Put simply, an LLC combines aspects of a corporation and a partnership. It offers the following benefits that differ from a corporate structure:

  • More flexible management structure: Even though you must file Articles of Organization, the operating agreement actually contains the meat of how the company operates both daily and in general. This allows you to tailor your business around your needs.
  • Tax choices: An LLC may choose to file taxes as one of several different types of entities, depending on which provides your business the most benefit.
  • Limited personal liability: The LLC shields you, other members and shareholders from its debts and judgment liens.
  • Investors as members: The operating agreement can specify that investors do not have any control over the operations of the business.
  • Fewer compliance issues: The LLC doesn't have the same recordkeeping, paperwork or meeting requirements as a corporation.
  • Perpetual existence: The LLC remains in existence even if a member sells shares or dies.

These advantages make an LLC attractive to many new business owners. However, as with any business structure, some disadvantages exist.

What's less than desirable about an LLC?

The following might cause more annoyance than anything, depending on your point of view, but you need to know they exist:

  • Pass-through taxes: The tax returns of its members and shareholders report the business' profits and losses -- with or without dividends. 
  • Additional taxes: States could require the payment of other taxes as well.
  • Raising money: Because of the tax requirements of an LLC, investors might not want to turn over their money to your business. 
  • Less structure: Without a properly drafted and detailed operating agreement, the operation of the business could suffer, and the success of the business could be in jeopardy.

If the business consists of only one member -- you -- then these disadvantages probably mean nothing. Basically, the smaller the number of members, the more likely that any cons won't make a significant difference.

Legal Assistance

After careful consideration, you might decide that an LLC works best for your business and its goals. If so, you could attempt to create it on your own. Some people attempt this in order to save money, but in the long run, any mistakes or oversights could cause more expensive issues in the future. Many of the issues a business faces surround omissions or mistakes made in the operating agreement.

Even though the state of South Carolina doesn't file this document, its importance requires answering numerous questions regarding how you want your business to operate, along with what you need to make that happen. You might benefit from seeking out the advice and assistance of an attorney in forming your limited liability company and especially with your operating agreement.

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