The LLC is able to pair the tax benefits of a partnership with the liability protection of a corporation. Owners in the LLC are called members are cannot be held personally liable for that debts and actions of the company. For new business or partnerships, LLCs can be found to be very useful.
This usefulness comes from the LLCs hybrid qualities which make it flexible in being taxed while keeping the owners not liable to lose everything to debtors or lawsuits. LLCs have grown in popularity over the last few years because of this.
Tax Flexibility– LLCs can be taxed as corporations, partnerships, or sole proprietorships. The owners of the LLC can elect how they want to be taxed. If the LLC has only one owner, the owner can choose to be taxed as a sole proprietor. If the LLC resembles a corporation, they can choose to be taxed as such. A business with more than one owner can choose to be taxed as either a partnership or a corporation.
Limited Liability-Members are not personally liable for the debts and actions of the business beyond their contribution to the LLC.
Double Taxation– LLC members are not subject to double taxation as C corporations are.
Tax Free– Not a taxable event if an S corporation or a partnership changes status to an LLC. The stipulation for this is as long as each owner’s percentage of profits, losses and capital remains the same after the change as it was before.
Termination– An LLC can be dissolved by death of members. Some states allow the remaining members to vote to continue the LLC. Sometimes the vote in favor has to reach a certain percentage or has to be unanimous.
Shareholder Tax– It is a taxable event for a C corporation to choose to become an LLC. Shareholders are taxed on corporate gains as if the assets of the C corporation had been distributed to them.
To see all of the previously explained business forms on a side by side chart click here.
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