The pros and cons of LLCs

On Behalf of | Mar 12, 2020 | Business Law

Choosing a structure is one of your earliest tasks when you are starting a business. Keep in mind that the business structure will determine legal and tax matters.

The benefits of a limited liability company structure often outweigh the disadvantages for business owners.

The benefits

Owners of an LLC are members. The members may manage the company, or you can hire managers if you wish. It depends on how involved you and other members want to be in the daily operations and decision-making processes. LLCs in Louisiana have the flexibility of adding or removing members and/or managers, although not all states allow this.

One of the primary benefits of an LLC is that it limits your personal liability. If someone sues the business and you lose, or if the business files bankruptcy, it will only affect the business’s assets. Your personal assets, such as real estate, bank accounts and investments, remain separate.

The IRS explains that you will file taxes based on what choices you make and how many members you have. You may have the option to choose pass-through taxation or file as an S corporation. Pass-through taxation means each member files an individual tax return based on his or her share of the profits. The company itself does not pay taxes. However, filing as a corporation allows you to keep your personal taxes separate from the company’s tax responsibilities.

The disadvantages

Tax consequences of pass-through entities are not exclusively positive. You are essentially self-employed in this case, so you would have to pay your own Social Security and Medicare taxes, as would your partners.

The fee schedule for LLCs is higher than for some other business structures in Louisiana. However, there is not a significant difference between the costs for LLCs and corporations.

The limited nature of liability for an LLC only goes up to a certain point. If you do not keep your personal and business assets separate, you may lose the benefit of limited liability in court. You could also lose the liability protection if you commit fraud or otherwise operate unethically or illegally.