Limited Liability Company (LLC)

Limited Liability Company (LLC) is a corporate structure in America; the owners are not personally liable for the company's debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship; the primary characteristic it shares with a partnership is the availability of pass-through tax entity. Limited liability companies (LLCs) don’t pay taxes. The revenue from the business is instead passed down to the owners, who are called members in LLCs. They claim the profits or losses on their personal tax forms. Single-owner LLCs pay taxes on Form1040 with the Internal Revenue Service (IRS). Partnership LLCs, in which there is more than one owner, must file partnership returns using Form 1065.

 

Pros:

  • Multiple owner LLCs get to choose whether to report their business as a partnership, a corporation, or an S corporation.
  • One-person LLCs may report either as an S or C corporation or on a personal Schedule C.
  • LLCs may have multiple classes of ownership this allows companies to shar in profits but not dismissions. Sharing profits with employees is a good way to attract workers without losing voting control.
  • LLCs are permitted to issue shares that may not be sold. Again, this is perfect for consultants and employees. If they leave, you may buy them out at a prearranged price or formula, whether they like it or not.
  • LLCs filing as a partnership don’t pay federal taxes.
  • They provide complete liability protection for all members from the LLC’s debts.

     Cons:

  • They are expensive to set up properly.
  • They are rarely set up correctly wit elections not being make a out the business structure in a timely fashion. This ends up causing complications with the IRS.
  • Some states charge minimum annual taxes.
  • Revenue tax—what is due even if the LLC ends up with a net loss.
  • Rules are different in each state.
  • Profits are subject to self-employment taxes if the LLC files a Schedule C or a partnership return.

 

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