If you are a new business owner, you must have come across a lot of suggestions to change your business into LLC incorporation. Changing your company into a legal entity such as LLC incorporation is a massive step and you need to be well aware of the benefits and the drawbacks that will come along with such a change.
Benefits of an LLC Incorporation
- As the name infers, the entity offers limited liability on any debt or obligation of the LLC incorporation. To put it simply, any debt or obligation that your company faces will not have an impact on your personal account, personal assets including real estate, etc. LLC incorporation gives a safety net to your personal assets except when there is a criminal intent involved in which case, the members of the board are liable.
- Unlike other corporations when you have LLC incorporation you can enjoy pass through taxation, which means the business income if considered as your personal income can get exemption from some federal taxations.
- There is no limit to the number of shareholders or owners that you can have for LLC incorporation. So you can have either one member, yourself or more than hundred as per you wish to in your LLC incorporation.
- There is no need to worry about allocating equal percentage to each owner in your LLC incorporation as far as their investment is concerned. When you are forming LLC incorporation you have the option to allocate different loss and profit percentage to each owner, whatever is their percentage of investment.
- Most importantly with LLC incorporation you are not curbed by requirements of holding annual board meetings or record keeping unlike other corporation set ups.
Like every coin has a flip side, LLC incorporation also has its downside. Let us now look at a few drawbacks in LLC incorporation.
Drawbacks of an LLC
- A major drawback with LLC incorporation is that you will find it quite tough to raise capital. This is due to the multiple legal requirements and state level regulations that make it tough to add new members to the LLC incorporation. And unlike corporation, you cannot issue stock either for LLC incorporation.
- Not all businesses can apply for LLC incorporation as the government does not extend the same protection to these businesses. This includes medical firms, insurance firms, financial institutions, etc. There are certain businesses which are allowed to be formed as LLC incorporation in one state and not in another.
- There are a lot of variations to the regulations to be followed for forming LLC incorporation at the state level. You would benefit immensely by hiring a professional who are well versed with the laws and regulations at both state (every state) and at federal for LLC incorporation to guide you.
After referring to the above benefits and drawbacks, if you still consider that LLC incorporation is the best choice for your company then it would be better to hire an experienced lawyer to start the process.