The Limited Liability Company (LLC) is the leading company structure of choice among small to medium business owners. The honor used to belong to corporations, but only multi-million dollar corporations have the ambition, (and the means) to become a corporation these days. This is because the country’s business models forced a change in priorities.
Large companies, because of their size, have a greater chance of losing stability, and are more vulnerable to the sways of the global market. The only way to maintain stability in this structure is to initiate a constant rate of growth, or continuously make the company bigger. This blocks smaller businesses from entering the market, and larger entities might eat up any business that tries.
This is why smaller enterprises slightly shifted their focus, from constant growth to the established security offered by LLC setups. LLC businesses are rarely publicly traded, meaning they are not as vulnerable to market changes as the corporation, but they are subject to the state’s tax laws, opening a variety of different scenarios for businesses.
For example, LLC laws in Wisconsin make no distinction between single-member LLCs (SMLLC), and multi-member LLCs. This means that a creditor of an SMLLC has the same rights as the creditor of the multi-member LLC. These rights include the proposal for dissolution of the LLC, a charging order, or a foreclosure. The rationale of Wisconsin courts is that single-member LLCs should allow their creditors the same remedies as a multi-member LLC in order to protect creditors from defaulting owners.
LLCs can also be established in other states, even if it’s not where you do business. Business owners use this LLC strategy if they find that another state’s LLC laws are more favorable to their adopted business models than the laws in their home state. Although one can set up in another state, doing so doesn’t disqualify the business from paying taxes in its home state. Reckless business owners may find themselves in a deep tax hole if they make a move without considering all the factors.
The statutes and laws governing LLCs, especially when crossing state lines, are complex at best. Consulting an experienced business lawyer is always recommended before making an important structural move.