Limitations of Limited Liability Company (LLC)

Despite all the above characteristics which make Limited Liability Company (LLC) a favorable structure, there are some shortcomings (Limitations) of Limited Liability Company structure. Some of such disadvantages are:

Growth Opportunities

LLC  structures have limited growth opportunities. LLC have capital structure restrictions and in case of any growth options, LLC cannot easily change its capital structure.  An LLC has to face many regulatory restrictions in terms of huge investment opportunities as well as resources are limited. Also,  

Uncertain Life Span

The perpetual existence of an LLC is less practical. In most of the LLC formation, a death or a departure of a key member of the LLC may lead to dissolution or restructuring of the company, which is again a potential disruptions. This uncertainty poses challenges in the long-term operation of the business.

Limited Access to Capital Markets

LLC has limited opportunities in capital market operations. Due to its hybrid nature, LLCs are less favored, if an LLC decides to participate in a secondary market. Investors are less attracted to LLC due to its unique structure and lack of shares that can be publicly traded. Corporations are favored to LLC.

Foreign Operation Complications

LLC may face various difficulties in fulfilling international rules and tax regulations. The management structure and capital requirement may act in place for any potential international projects. The management structure and capabilities restricts LLC from better international opportunities. It is significantly difficult for LLC to maintain and manage the regulatory frameworks.

Cost Complications 

There are various charges, taxes, fees and costs related to establishment and operations of an LLC. There are various costs in the form of fees, registrations and expenses which can pose a barrier for many individuals. Similarly, there are taxes and other regulatory expenses which can add on to the operational costs of an LLC. 

Apart from such establishment and regulatory requirements, there are professional services which can include regular legal and accounting counseling fees to maintain. All such sums up to a considerable cost in operation. Maintaining all these expenses and fees is not for everyone, hence it can create a barrier to many individuals willing to have an LLC structure. 

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