Forming A Limited Liability Company-The Best Bet

Pros & Cons Of Limited Liability Company

September 1, 2004
By Akhilesh Goenka

There are many countries, which consent to the usual structures of partnership, sole-proprietorship, or corporation for business ownership; In America however the business structure of Forming a Limited Liability Company is very common as compared to other nations.

Owners of such a business enterprise have a liability protection. They have an entity of their own which is comparable to a corporation. To be held liable for debts the Members have to sign a personal guarantee. If a comparison is made between a Limited Liability company and a general partnership firm the former seems to be a lot more flexible.

This type of business ownership has numerous collective features of both corporations as well as partnerships. The owners of such business structures are called members and not partners or shareholders, as is the case with others. There is no binding to the number of members and they may encompass individuals and corporations.

The Limited Liability Company does not require keeping note of the minutes or resolutions and is simpler to manage. All the profits and losses run through the company to the individual members and there is no double taxation. There are quite a lot of disadvantages as well for a limited liability company.

In Corporations there is a sense of continuity and can be never ending, whereas a Limited Liability Corporation is dissolved when a member dies or becomes bankrupt. A business structure of this kind may not be very suitable for owners who want to make their company public by issuing shares.

The whole process of bringing a limited liability company into existence is quite complex but simpler when compared to a corporation. For setting up a company with limited liability, one has to file articles of organization with the Secretary of State and pay the required fees. These can be prepared by hiring a lawyer or the individual himself.

An operating agreement is required to be filed, which defines the company’s profit sharing, ownership, responsibilities, and any other changes. Although filing of this document is not necessary with all states in the United States. This document of agreement is essential as it helps in avoiding any future differences between members.

It is always suggested that one seeks tax and legal counseling to determine the best business structure the person should opt for. This is not the only factor to be taken into consideration as it also depends on the individual’s capacity to undertake risk. Hence it is always better to make a feasibility report before hand and weigh its pros and cons rather than making a hasty decision.