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How to decide Limited Liability Company is the right choice for company formation?
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However, it is not considered as a corporation, still, it offers the same protection that a corporation offers. Choosing a suitable model for your business before starting operations is mandatory to decide few critical liabilities like tax payments, personal liabilities and regulations you will need to follow while operating your company. You may have heard a lot of benefits about LLC setups; you should not select any corporate structure unless you are not aware of its downsides along with benefits.

Below I am sharing few essential advantages and disadvantages of picking LLC for a company formation in UAE. Review them to decide whether it is a right choice or not. 

Flexible management structure

Despite being instructed to execute filing all the articles of organization to state authorities, this model offers flexibility to manage structures over other setups. Entrepreneurs are allowed to create enterprise structures according to their requirements. Besides this, enterprises using this module also have freedom to decide the way to pay taxes either as a sole proprietorship, partnership, S corporation, or corporation. Profits and losses are not assessed directly; rather tax is deducted via single member’s personal federal tax return.

Reduced paperwork

In contrast to other corporations, LLC operating agreements empower you to decide the rules to govern your setup. However, companies have to follow the state rules. Flexible requirements for compliance and paperwork make it easier for small companies to maintain a good legal standing.

Owner asset protection

In addition to other pluses, it also protects personal liability of owners and shareholders in case of court judgments and debts against an organisation. Creditors are not allowed to access personal assets of members. During financial crisis owner accounts and assets remain safe.

Fewer contractual issues

Simple policies and condition to establish a setup, organizations founded on this system don’t require annual meetings with the board of directors. Moreover, less documentation for recordkeeping also makes this process hassle free.

Don’t forget to explore these downsides associated with LLC setups. Reviewing them is equally important for an entrepreneur to ensure ultimate success.

Personal tax returns

Although it doesn't require double taxation like corporation setups, this module taxed all individuals associated with the firm as partners. Profits and losses are deducted from all shareholders tax return. This is why it is often said these setups are more suitable for one person. Charging tax on personal levels often increases the total amount at the corporate level. It’s better to hire a professional accountant or lawyer to estimate the suitability of idea.

Undefined roles

As companies established on these modules don’t possess specific roles like (CEO, managers and employees in a corporate) confusions may emerge. Especially, if there are a number of shareholders associated with a single firm. However, confusion can be resolved after making an LLC Operating Agreement.

Earning money is difficult

As this system does not possess a solid structure like corporates, investors find it difficult to feel confident and put their money. Moreover, lack of organizational foundation also affects the stability of a company. In few countries, LLC setups are dissolved once a member departs. Collective effects of these drawbacks make this organizational structure less attractive for many.

Summary: Limited Liable Companies are capable of offering a great combination of benefits and security, however, if disadvantages are superseding they clearly indicate LLC is not the ultimate choice.

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