What Are The Disadvantages of a Limited Liability Company?


The Limited Liability Company (LLC) may have plenty of advantages, but is not without a few disadvantages. Probably the biggest issue faced by LLCs is the fact that they are such a new type of entity. The first LLC statute in the United States was passed in the state of Wyoming in 1976. Nevada passed one in 1991, California in 1995, and the last states, Massachusetts & Hawaii joined the fold in 1997. Because of this, there is simply a lack of case law to determine how LLCs will be treated in certain instances.

Not all businesses can operate as LLCs. Businesses in the banking, trust and insurance industries are typically prohibited from forming an LLC. Some states have their own restrictions on who can form an LLC. In California, architects, accountants, lawyers, doctors and other licensed healthcare workers are prohibited from forming an LLC.

Talk to us today at 1-800-648-0966 about whether an LLC is right for you.

Entity Comparison Chart

The following table provides a look at the LLC vs Corporation, and LLC vs S-Corporation. Tax comparisons can be found in the lower portion of the table.


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Type of

Stock, there may be different classes.

Membership interests. There may be different classes of membership. One class of stock. Which may be voting or non-voting.
Eligible Owners No restrictions. No restrictions. 100 shareholder limit. No non-individual and no non-resident alien shareholders.
Management Managed by director(s) and officer(s). Two Management Types
- Managed by Manager
- Managed by Members
Managed by director(s) and officer(s).
Allocations of Ownership None. Dividends must be paid based upon stock ownership. Permitted if the allocations have substantial economic effect. None. Income, gain, and loss pass-through to the shareholders based on the percentage of shares owned.
Liability Protection There is limited liability for shareholders, officers and directors. There is limited liability for members and managers (if applicable) There is limited liability for shareholders, officers and directors.
Duration Perpetual Dissolves at the time specified in the Operating Agreement or upon the loss of a member unless other members agree to continue. Perpetual
Transfer of Ownership Shares freely transferred. There may be restrictions under certain state laws. Shares can be transferred only to eligible S-corporation shareholders

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