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FROM THE FOUNDER
LLCs vs. corporations
I am no attorney and I don’t provide legal advice; neither does Zweig Group. That said, the attorneys who put so many new AEC companies into an LLC are like dentists who give away candy that rips out your fillings. They are literally creating problems for their clients and future work for themselves by doing so. LLCs are often ill-suited for growing AEC firms, leading to legal entanglements and hindrances later on.
Mark Zweig
LLCs were never intended to be a legal structure used to run a going concern. They typically have a limited lifespan and were designed to do things such as perform a real estate development project. One or a few people pool their resources to buy a piece of property and improve it. The project is done and the LLC is liquidated. There aren’t owners coming and going throughout the project. There’s no board of directors, bylaws, or shareholder agreements. The way these LLC operating agreements are written, every decision of any consequence requires unanimity. You don’t have stock you can buy and sell governed by a shareholder agreement with a valuation methodology and buyback terms. It’s fine for something that will last a year or two, but it’s unwieldy when you try to apply that to a growing AEC firm.
Sure, if you want a passthrough entity for tax purposes and have non-U.S. citizens as owners, an LLC may make sense because you cannot do that with an S-corp. But otherwise, as a legal form for a legitimate AEC firm that hopes to grow and create value for its owners, an LLC will eventually become paralyzing if the ownership has to change. And in my experience, it usually does. A member doesn’t perform and needs to go. A member wants to go do something else. A member gets sick or dies and has to be bought out. Then, nine times out of 10, there is a dispute that must be resolved by attorneys. If you are an entrepreneurial small firm owner who is currently running your business as an LLC, please go
See MARK ZWEIG , page 6
THE ZWEIG LETTER MARCH 11, 2024, ISSUE 1528
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