F.A.Q: What are the advantages and disadvantages of an LLC?

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The main advantage of forming an LLC is to limit personal liability because LLCs have their own existence. Other advantages of an LLC include the following:

–LLCs can be governed informally. They do not require a board of directors, meetings, quorums, minute keeping, and other management formalities.

–LLCs have flexibility in deciding how to split their financial interests. An LLC can distribute its income to each member equally, based on his or her capital contributions, or in many other ways.

–An LLC can be a pass-through tax entity without the restrictions that are imposed on corporations.

The disadvantages include the following:

–LLC members can’t pay themselves wages.

–Some states charge a franchise or capital values tax on LLCs. This fee can be a flat fee or a fee based on the revenues of a company.

–Some LLCs have difficulty raising capital because investors tend to put their money into corporations.

–Some banks are hesitant to give loans to LLCs because of high turnover rates and smaller assets.

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