question.jpgIn Business Law

What are the disadvantages of setting up an LLC?

LLCs are not necessarily the best option for companies hoping to grow over time and accumulate new investors. Companies that hope to grow to the point of going public, for example, are better-off as corporations, as investors are much more comfortable investing in corporations rather than LLCs. Thus, it is often easier to raise money as a corporation. While LLCs can later change their business form and reorganize as a corporation, this often raises a variety of complicated legal and tax implications.

Another disadvantage to LLCs is that, while they cheaper and easier to setup than corporations, they are still more complicated and expensive than partnerships. For example, there are still certain fees and filings that an LLC must make with various states. In addition, some states do not even allow certain types of businesses to operate as an LLC.

Another costly disadvantage to LLCs (although corporations share this as well) is that many states require your business to get a license if you are going to do business in that state, even if the LLC is actually located in another state. Obviously, this can become very costly for LLCs intending to do broad, nationwide business. This same requirement does not generally apply to sole proprietorships or partnerships.