There comes a time in every new business when you have to start thinking about the legal framework of ownership. Should you be a partnership, a corporation, or a limited liability company (LLC)?

Each category has its pros and cons, but for some smaller companies, an LLC can fit the bill nicely. One big plus is the limited liability part. The owners of an LLC are only on the hook to creditors for the amount they invest, not for anything more. Another is that owners have different options for how they want to be taxed. A third advantage is that LLCs have minimal startup costs and there are not as many requirements regarding record keeping, which keeps administrative costs lower.

However, LLCs can be problematic if there is not a well-defined operating agreement addressing the relationship among the owners (referred to as Members) and the management of the LLC. Another consideration is taxes. By default, an LLC is either disregarded for tax purposes if it only has one Member or treated as a Partnership for tax purposes if there are multiple Members. As a result, the owners of LLCs can be subject to self-employment tax unless other tax elections are filed. Because of issues like this, some owners prefer the structure of a corporation, where there is more governance and clearly defined roles for the principals, which can be a better fit for some organizations. In general, the corporation structure is more suited to the needs of larger companies.

Determining what legal structure suits your business is a job for an experienced attorney. If you need expert advice about setting up the right legal framework for your business, contact Grissom Law, LLC at 678-781-9230.

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