By Craig T. Watrous:
The choice of business entity is a critical component of any new business venture. In many cases, an LLC (limited liability company) may provide the most versatile and appropriate business form. Here are 9 quick but compelling reasons why:
1. There is no limit on the number of members that an LLC can have.
Some entities, like S-corporations, have limitations on the number of owners the entity can have. An LLC doesn’t. For this reason an LLC can be a good choice if you anticipate many different owners.
2. Any person and/or entity can be a member.
S-corporations have limitations on the types of persons and entities that can be shareholders of the corporation (most entities do not qualify). An LLC can be owned by both individuals and entities (e.g., other LLC’s, S-corps, trusts, etc.)
3. No recognized gain on the distributions of appreciated property.
4. One level of taxation.
Unlike C-corps, LLCs have pass-through tax advantages so the only tax is at the investor level, not at the company level.
5. Limited liability protection for all members of the LLC regardless of their involvement in management.
6. An LLC’s liabilities can increase the basis of the members in their LLC ownership interest.
7. An LLC’s operating Agreement can be drafted to meet the specific needs of the members.
Unlike the more formal structure of by-laws used by S-corps and C-corps, an LLC’s governing document, the operating agreement, can be drafted with significant flexibility to meet the particular needs of the members and business.
8. An LLC can make disproportionate distributions and allocations among its members.
9. An LLC offers the same limited liability protection as an S-corporation or C-corporation.
There is often a misconception that LLCs offer less liability protection to its owners than corporations. Provided that corporate/legal formalities are followed, this is simply not true. LLCs provide the same level of liability protection to their owners as corporations.
For more information on our business and corporate representation, please visit our business practice page.
Mallon Lonnquist Morris & Watrous, LLC, is a business, employment, real estate, and litigation law firm. Craig T. Watrous is a Colorado business attorney and
partner at MLMW, based in Denver, Colorado. Craig regularly represents clients in the organization and management of LLC’s. Craig can be reached at