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What Is an LLC and Is It the Right Structure for My Business?

Posted On September 26, 2019

A limited liability company, or LLC, is business structure that has many advantages for entrepreneurs and small enterprises. Many choose to set up their business as an LLC for the simplicity it provides, which allows owners more time to focus on the business itself rather than on rules and regulations.

LLCs combine the protections of a traditional corporation with the operating flexibility that small businesses need. These are some of the features that make an LLC an attractive structure for a new business:
  • An LLC is easy to form and administrate under South Carolina law. An LLC has fewer record-keeping requirements and does not require annual meetings, election of officers and a board of directors, adoption of bylaws or extensive reporting requirements to state agencies.
  • LLC organizers may customize the rules for how their business will run by drafting an operating agreement that defines members’ rights and responsibilities. Although South Carolina does not require an operating agreement to form an LLC, an operating agreement can prevent headaches down the road. A well-drafted operating agreement should cover selling or transferring ownership interest, voting rights, members’ rights to distributions and members’ role in management. If the operating agreement does not address the issue, the South Carolina Uniform Limited Liability Company Act will govern the operations of the LLC.
  • An LLC is not taxed on its profits, which are taxed as members’ personal income rather than at the higher corporate rate. If distributions to LLC members are planned, this “pass-through” taxation lets members avoid paying both the corporate tax and then personal income tax on the income distribution, which usually results in a lower overall tax obligation.
  • An LLC, like a corporation, insulates its members from liability for company debt. However, some courts have ignored the corporate form for single-member LLCs of non-operating companies that are used simply to shield assets from creditors.
  • LLC members can (and should) plan their exit strategy. Members in an LLC are all treated equally, and there is only one class of ownership interest. Turner Padget Of Counsel Sarah Day Hurley has a legal checklist for business startups that says, “You may want to place restrictions on how partners can sell their interests and include a formula for determining a price to buy theirs. One advantage of an LLC is that all of this can be covered in an operating agreement that is tailored to your business.”
While the simplicity of an LLC allows a quick start for entrepreneurs, the business structure works best when it includes an operating agreement developed with the guidance of an attorney experienced in business formation. As Turner Padget Shareholder Mark Goddard puts it: “We’re big fans of LLCs, but they are not without potential pitfalls. When there are problems, it’s usually because the LLC members were in a hurry at the outset and didn’t take advantage of all the safeguards and flexibility this business formation entity allows.”

In business, things don’t always go as expected, and a common problem is disputes among family or friends. Take the extra time to identify and talk through thorny issues with legal counsel and get it right on the front end. Every business has its own special considerations, and an experienced attorney can advise you on the advantages and disadvantages of using an LLC to achieve your business goals.

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