Starting a new business in New York can be an exciting process, but one that requires careful consideration to ensure a business owner selects the right type of business entity. Among the most popular types of business entities is a limited liability company, or LLC for short.
Advantages and disadvantages of an LLC
A primary advantage of an LLC is that it protects its owners — referred to as members — from personal liability for the debts of the LLC. An LLC also offers members great flexibility in managing the day-to-day operation of the business and can provide tax benefits by allowing all profits to “pass through” to members without the LLC having to first pay taxes on the profits.
But an LLC has disadvantages in certain situations. For example, the liability protections of an LLC are limited if members fail to maintain separation between personal and business finances.
It is also difficult to change LLC members — often an LLC must be dissolved and a new LLC formed if membership changes. In certain circumstances, there may be tax disadvantages to an LLC.
Deciding whether to form an LLC
While an LLC is a great option for many businesses, a corporation or sole proprietorship may be the best options for other businesses.
Business owners can consult a skilled attorney for advice and information about the advantages and disadvantages of forming an LLC.
Additionally, if an LLC is the right option for a business, it is important that a skilled attorney assist with drafting and filing the LLC’s Articles of Organization, which are necessary to establish an LLC.
Ultimately, knowledgeable legal counsel is critical to ensure that your first act as a business owner — forming the business — sets you up for long-term success.