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Unlimited Possibilities with Limited Liability Companies

(May 2008) posted on Sun May 11, 2008

More screen printers are looking toward LLC status as a way to operate competitively while protecting their personal assets. Read on to find out about the other advantages associated with limited liability companies.


By Mark E. Battersby

Sound like a partnership? Well, not quite. Even a limited partnership (LP) has one party who assumes liability—the general partner—and who usually must have substantial net worth. Furthermore, limited partners who participate in managing the screen-printing business risk losing their limited liability.

 

Viva the difference

Corporations are required to keep formal minutes, have meetings, and record resolutions. The LLC business structure requires no corporate minutes or resolutions and is easier to operate. In fact, in some states, LLCs can be created with just one natural person involved.

All business losses, profits, and expenses flow through the screen-printing business to the individual members of the LLC. You avoid the double taxation of paying corporate tax and individual tax. This generally is a tax advantage, but circumstances can favor a corporate tax structure.

Probably most importantly, owners of an LLC have the liability protection of a corporation. An LLC exists as a separate entity, much like a corporation. Members can’t be held personally liable for debts unless they’ve signed a personal guarantee.

 

The downside

Admittedly, this limited liability is not foolproof. Both LLC members and cor-porate shareholders can lose this protection by acting illegally, unethically, or irresponsibly. Additionally, many courts are increasingly reaching behind the corporate veil into the pockets of members and shareholders who have not kept the business entity fully sepa-rate from their personal finances. Other disadvantages include, but are not limited to:

Limited life While corporations can live forever, an LLC is dissolved when a member dies or undergoes bankruptcy.

Going public Owners of screen-printing businesses who have plans to take their company public, or to issue shares to employees in the future, may be best served by choosing a corporate business structure.

Raising capital It may be more difficult to raise capital for an LLC, as investors may be more comfortable in-vesting funds in the better understood corporate form with a view toward an eventual IPO.

Complexity Running a sole proprietorship or partnership usually involves less paperwork and is less complex. Under federal tax laws, an LLC may be classified as a sole proprietorship, partnership, or corporation for tax purposes. Classification can be made on the tax return thanks to the so-called Check-The-Box question on the tax return. If not selected, a default often applies.


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