Limited Liability Companies (LLC)
When to form an LLC (Limited Liability Company) (Links to an external site.) discusses why the LLC is one of the most popular types of business entity. After reading the article and Chapter 30 of the textbook, compare an LLC with a C corporation and with an S corporation. If you were operating your own business, would you choose the LLC as the organizational form for your business? Explain your reasoning.
The main reason limited liability companies (LLC) are so popular in choosing a legal form for businesses is the wide range of liability limitations. In LLC, shareholders are generally not personally liable. In the event of bankruptcy, the partners, unlike a partnership, are not liable with their private assets. In such cases, only the company’s capital can be accessed.
The legal form of a company with limited liability usually also brings tax advantages for a company, because the profits are subject to corporate income tax at a uniform tax rate. This tax rate is rigid and therefore always constant. In contrast, the profit shares of a partnership are subject to progressively increasing income tax.
LLC is particularly suitable for founders who want to design their business model flexibly, as shares can be easily bought and sold. For example, investors can easily buy into the company via contract, which makes the limited liability company more attractive to investors. Another advantage is that it is possible to hire an external manager who does not have to be a partner. This can be particularly important for securing the company’s succession, and flexibility in personnel issues remains.