Disadvantages of an LLC

Disadvantages of an LLC

The LLC does have some additional administrative requirements when compared to a sole proprietorship or limited partnership. They are typically related to  keeping liability protection in place for the LLC members.

Cost. Compared to a sole proprietorship or partnership, an LLC is a little more expensive to operate. The start-up cost is only slightly more than for a corporation, but proprietorships and general partnerships do not have start-up or annual fees.

Taxes. A limited liability company owner may have to pay unemployment compensation for him or herself, which he or she would not have to pay as a sole proprietor.

Banking. Checks made out to a limited liability company cannot be cashed; they must be deposited into a corporate account. Some banks have higher fees just for businesses that are incorporated.

Separate records. The owners of a limited liability company must be careful to keep their personal business separate from the business of the limited liability company. The limited liability company must have its own records and should have minutes of meetings. Money must be kept separate. Businesses should maintain seperate recrods and the structure of a company might make it easier to do so.

  • Limited Liability Company: Introduction
    For hundreds of years, the three choices of business entity were sole proprietorship, partnership and corporation. However, the LLC was invented in 1977 by the state of Wyoming to fill a new need—businesses that wanted to be managed and taxed like partnerships, but protected from liability like a...
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  • Common LLC Terms
    Before forming an LLC, you should be familiar with these common terms used when discussing LLCs. Member A member is a person who owns an interest in a limited liability company. Unless the articles of organization provide otherwise, the members also manage the LLC. Managing Member A managing member...
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  • Definition of a Limited Liability Company or LLC
    Like a corporation, a limited liability company or "LLC," is a separate and distinct legal entity. This means that an LLC can obtain a tax identification number, open a bank account and do business, all under its own name. The primary advantage of an LLC is that its owners, known as members, have "...
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  • Ownership Percentages
    LLC ownership can be expressed in two ways: (1) by percentage; and (2) by membership units, which are similar to shares of stock in a corporation. In either case, ownership confers the right to vote and the right to share in profits.
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  • LLC Advantages and Disadvantages: Overview
    Before forming a limited liability company, the business owner or prospective business owner should become familiar with the advantages and disadvantages of an LLC and how they compare to those of other business entities.
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  • LLCs Compared to Corporations
    LLCs are similar to corporations in that they allow you to start a business without worrying about unlimited liability. However, in creating the LLC, state laws provide some advantages over corporations. Advantages of an LLC
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