A Limited Liability Company can be defined as a corporate structure where the company’s members cannot be personally held liable for the debts and liabilities of the company. This kind of a company is a hybrid company that exhibits characteristics of a sole proprietorship, a partnership, and a corporation. It comes with the limited liability feature like a corporation. It also exhibits the perk of pass-through taxes to its members similar to that of partnerships.
Types of Limited Liability Companies
The four types of LLCs in the UK are namely:
- Public Limited Company
- Private Unlimited Company
- Private Limited Company (Limited by Shares)
- Private Limited Company (Limited by Guarantee)
The list of advantages of setting up a Limited Liability Company is long. Here is a list of several advantages that stand out.
- One of the most significant advantages of forming an LLC is you don’t need to file a corporate tax return. The owners of the Limited Liability Company file their individual tax returns. This helps you avoid double taxation.
- An LLC holds higher credibility amongst its creditors, investors, partners, and lenders in comparison to other corporate structures.
- A Limited Liability Company gifts its owners or members the advantage of limited liability. The members of an LLC are liable towards the company’s debts and liabilities only to the extent of their contribution towards the company. This feature of an LLC protects the personal assets and finances of the owners and the members of the Limited Liability Company.
- An LLC has continuity, and it can only cease to exist if terminated, liquidated, or struck off the register of Limited Liability Incorporations by the Registrar.
- An LLC has a very flexible structure where changes can be made easily even after its official registration and incorporation. It also has a high potential for
- As a separate legal entity, it has its own identity. It can own property, invest, open bank accounts in its own
Some of the worth knowing disadvantages of an LLC are sited below for your ready reference:
- In comparison to a partnership firm or a sole proprietorship, the cost of operating an LLC is higher. Its annual fees and start-up costs are generally higher than partnerships and proprietorships.
- A Limited Liability Company is usually subject to a self-employment tax. This basically means that an LLC’s profits will not be taxed at the corporate level but will be taxed via the personal federal tax returns of the members who will account for the profits. Usually, these taxes are higher than they would be at the corporate level.
- An LLC’s has different titles for its principals such as managers, members, managing director, president, chief executive officer, partner and managing member. In such a situation it is hard to determine with who does the authority lies and who to enter a contract with.
- Raising funds for a Limited Liability Company can be a tough endeavor because unlike corporations it cannot issue bonds or stocks to raise capital
LLC is a brilliant combination of protection and flexibility. If this is what you are looking for a Limited Liability Company is definitely the solution to your problem. However, keeping in mind, the taxation rules applied on an LLC this may not be the perfect corporate structure for your business. The above information is intended at giving you a clear understanding of a Limited Liability Company’s advantages and disadvantages.