When creating a new business from the ground up, it is important to start with the basics. What sort of structure do you want? Each business formation comes with its own benefits and drawbacks.
For many, a limited liability company is an ideal option. Though it has some drawbacks, the benefits are numerous and enticing.
What are the risks and drawbacks?
Nerdwallet discusses the benefits and drawbacks of an LLC. The potential drawbacks often revolve around limits. For example, a judge could rule that your LLC does not protect your personal assets. This is piercing the corporate veil. You are at risk if you do not clearly separate your business and personal assets. It is also a risk if you run your business in a way that resulted in losses for others.
Membership turnover is also an issue. In most states, a member’s death, bankruptcy or departure means you have to dissolve the entire LLC. You have to pick up the tab to terminate the company and if you still want to do business, you need to register a new LLC.
What are the benefits?
On the plus side, it offers a huge amount of flexibility in structure. Members can co-manage it. Owners get to share decision making, or you can choose to outsource to managers or other members. It is also easy to start and keep up with an LLC. The fees and paperwork to start it are relatively simple. Though legal expertise is always a boon, it is easy to set up on your own.
You get limited liability protection, too. This means that generally speaking, your personal assets are not at risk if the business goes under. This is one of the biggest draws of an LLC. Barring specific examples such as the ones listed above, you have less to lose. This is a great way to start out and reduce initial business risks.