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Why More Business
Owners Choose LLC's
A Limited Liability
Company (LLC) is often
described as the
combination of a
partnership and a
corporation. This is
because an LLC combines
the tax advantages and
management flexibility
of a partnership with
the liability protection
of a corporation.
Forming an LLC has
become a popular
alternative for sole
proprietors and
partnerships that have
thought about forming a
corporation in order to
protect personal assets.
LLC's also avoid "double
taxation" because the
income of the LLC itself
is not taxed at the
company level. Instead,
taxes on profits and
deductions of losses are
computed at the
individual level on the
personal tax return of
each LLC member (owner).
Note: LLC owners can
elect for the IRS to tax
the LLC as a sole
proprietorship,
partnership, C
Corporation, or S
Corporation. Owners make
this election through
the IRS after the
company forms with the
state.
Advantages of an LLC
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Limited Liability.
Like the
shareholders of a
corporation, the
owners (called
'members') of an LLC
have limited
liability for
business debts. If
the LLC is properly
structured and
managed, each
owner's personal
assets will be
protected from
lawsuits and
judgments against
the business, so
each owner's
liability is limited
to the amount each
has invested in the
company.
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Pass-Through
Taxation.
If an LLC has only
one owner, the
Internal Revenue
Service will
automatically treat
the LLC as a sole
proprietor.
Similarly, an LLC
with multiple owners
will, by default, be
taxed as a
partnership. Owners
report their share
of the profits and
losses of the LLC on
their personal tax
returns, and no
separate tax is
assessed on the
company itself.
Note: If you want
your LLC to be
treated as a
corporation that has
to file its own
corporate tax
return, we can tell
you how to file
papers with the IRS
to make it happen.
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Citizenship.
All owners of a
Subchapter S
Corporation ('S
Corp') are required
to be citizens or
permanent residents
of the United
States. There is no
such requirement for
a general, or 'C,'
corporation or for
an LLC.
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Management
Flexibility.
LLC's have much more
management
flexibility than
corporations. Also,
an LLC may be
managed either
directly by its
owners or by a
manager who may be
one of the members
or may be hired to
run the business.
Although an S
corporation is
limited to 100
owners, an LLC may
have an unlimited
number of owners.
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Simple
Recordkeeping.
Unlike corporations,
LLC's are not
required to hold an
annual meeting and
draft meeting
minutes. Note,
however, that an LLC
does need an
operating agreement
that will specify
how and by whom the
company will be
managed, each
owner's name, the
amount of ownership
interest held by
each owner, and many
other items. We can
assist customers in
writing up their
operating
agreements.
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Deductible Expenses.
Similar to a
corporation, normal
business expenses
like an owner's
salary may be
deducted from the
profits of an LLC
before the LLC's
income is allocated
to its owners for
tax purposes.
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Flexible Profit &
Loss Allocations.
Unlike a
corporation, an LLC
is not required to
allocate profits and
losses in proportion
to ownership
interest ("member
interest'). This
means that the
owners of an LLC can
agree to allocate
the company's
profits and losses
among themselves
however they see fit
and not necessarily
based on the
percentage of the
company each owner
controls.
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Nationally
Recognized.
The LLC is now a
recognized business
structure in all 50
states and the
District of Columbia
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LLC
Benefits