{"id":62897,"date":"2025-08-04T12:40:53","date_gmt":"2025-08-04T12:40:53","guid":{"rendered":"https:\/\/emprendix.com\/?p=62897"},"modified":"2025-08-04T12:40:53","modified_gmt":"2025-08-04T12:40:53","slug":"what-are-the-disadvantages-of-a-limited-liability-company","status":"publish","type":"post","link":"https:\/\/emprendix.com\/en\/what-are-the-disadvantages-of-a-limited-liability-company\/","title":{"rendered":"What are the disadvantages of a Limited Liability Company?"},"content":{"rendered":"
Setting up a Limited Liability Company (SL) can be an excellent option for many entrepreneurs, as it offers advantages such as personal asset protection. However, it\u2019s not all benefits. This business model also presents a series of disadvantages that should be carefully evaluated before incorporation<\/strong>.<\/p>\n From our administrative consultancy in Palma de Mallorca<\/strong><\/a>, we explain the main drawbacks you should consider if you are thinking of creating an SL in Palma de Mallorca<\/strong><\/a>.<\/p>\n Unlike registering as a sole trader, the creation and management of an SL involves more procedures and legal obligations<\/strong>. You must maintain formal accounting, hold shareholders\u2019 meetings, file annual accounts, and comply with commercial and tax regulations. This requires more rigorous management and often professional support.<\/p>\n Forming an SL includes several initial expenses<\/strong> such as:<\/p>\n Additionally, maintaining an SL involves ongoing costs<\/strong> for bookkeeping, tax filing, and sometimes auditing. Therefore, it\u2019s essential to assess whether these expenses are outweighed by the benefits of a corporate structure.<\/p>\n Shares in an SL are not freely transferable like those in a public company. Selling or transferring them often requires approval from other partners or compliance with internal statutes, which can make it difficult to bring in new investors or exit the company.<\/p>\n In an SL, important decisions must be approved in a general meeting of shareholders<\/strong>, which can slow down business operations, especially in urgent situations or when disagreements arise. This added bureaucracy can hinder agility.<\/p>\n Although not a large amount, a minimum capital of \u20ac3,000 is required to establish an SL. For some entrepreneurs with limited resources, this may pose a challenge.<\/p>\n An SL is subject to Corporate Tax, which may lead to a higher tax burden compared to operating as a sole trader. In addition, when profits are distributed as dividends, the shareholder must also pay personal tax\u2014resulting in double taxation<\/strong>.<\/p>\n Closing a Limited Liability Company requires a formal dissolution and liquidation process, which is usually more lengthy, costly, and bureaucratic than closing as a self-employed person. This involves convening meetings, appointing liquidators, settling debts, and filing official documentation.<\/p>\n In an SL, the company\u2019s money is not for personal use at will<\/strong>. It can only be withdrawn as salary, dividends, or loans\u2014each with its own fiscal and legal implications.<\/p>\n A Limited Liability Company<\/strong> is a smart option if your business involves multiple partners, requires investment, or you want to protect your personal assets. However, before moving forward, it is essential to seek professional advice<\/strong> to determine if the advantages outweigh the disadvantages in your specific case.<\/p>\n At our gestor\u00eda in Palma de Mallorca<\/strong><\/a>, we help you create a Limited Liability Company in Palma de Mallorca<\/strong><\/a> safely and ensure you choose the right legal structure for your business goals.<\/p>\n1. Greater administrative complexity<\/h2>\n
2. Higher initial and maintenance costs<\/h2>\n
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3. Restricted transfer of shares<\/h2>\n
4. Bureaucracy in decision-making<\/h2>\n
5. Mandatory minimum share capital<\/h2>\n
6. More complex taxation and potential double taxation<\/h2>\n
7. More complex closure process<\/h2>\n
8. Less flexibility in handling company funds<\/h2>\n
Is setting up an SL a good idea?<\/h2>\n