The pros and cons of forming a limited liability company in Louisiana
For those forming new businesses, a limited liability company is a business structure option, which carries both benefits and disadvantages.
When starting a business in Louisiana, there are a number of business structure options. This includes limited liability companies, or LLCs, among others. With all of the options, it can be difficult for people to determine if an LLC is the right choice for their situation.
According to the Small Business Association, an LLC is a type of hybrid business structure. It combines certain partnership options with some of the features offered through incorporating a company. This provides the business owners, or members of the LLC, with a level of operational flexibility.
Limited profit sharing restrictions
Sometimes, when there are multiple owners of a business, they may not split the profits equally between them. With some business structures, however, their options and rights may be limited. By forming an LLC, they are able to distribute their profits as they deem appropriate. Business owners may divide their company’s profits and debts based on such factors as the sweat equity and capital contributions of each member.
For tax purposes, one-member LLCs are treated like sole proprietorships. Consequently, the member must pay self-employment taxes, including Medicare and Social Security, himself or herself. Furthermore, the member must report the LLC’s profits or losses on the appropriate form and include it with his or her personal tax return.
When LLCs have more than one member, they are considered partnerships for tax purposes, according to the Internal Revenue Service. Therefore, the LLC’s deductible losses and taxable profits are passed on to the members. Thus, the LLC itself does not pay any taxes.
Simplified start up
Other business structures can be complicated to set up. There is typically less involved with forming an LLC and members have less registration paperwork to complete. It is also less costly to start up an LLC than it is to form an S-corporation, or some other business structures.
One advantage of LLCs is that they can have as many owners as are wanted. The problem, however, is that LLCs must generally be dissolved if a member leaves. The remaining members may decide whether to form a new LLC after fulfilling any legal obligations and closing. The Small Business Association points out that LLCs may include terms in their operational agreements that allows them to remain in operation after a member leaves.
Limited legal responsibility
LLCs provide members with liability coverage against claims relating to their business actions or decisions. Therefore, they cannot be held financially responsible if their business is sued or incurs debt. This does not provide full legal protection, however. Members may still be held liable for their workers’ actions in some circumstances.
Working with an attorney
There are a number of legalities involved with starting a new business in Louisiana. Those who are forming a company may benefit from consulting with an attorney. A legal representative may help them determine which structuring option is best suited for them, and guide them through the legal process.