A Limited Liability Company (LLC) is a business structure allowed by state statute. LLCs are popular because similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation. [1]
The federal government does not recognize an LLC as a classification for federal tax purposes. An LLC business entity must file as a corporation, partnership or sole proprietorship tax return.
The Advantages of a LLC are: [2]
- Limited Liability
- Choice of taxation
- Flexible ownership rules
- Flexibility distribution of profits and losses
- Operating flexibility
The Disadvantage of a LLC are: [2]
- No stock
- Limited life span
- Fewer incentives
- Taxes
- Paperwork
It is important to understand that limited liability does not imply that owners are always fully protected from personal liabilities. Courts can and sometimes will pierce the corporate veil of corporations (or LLCs) when some type of fraud or misrepresentation is involved.[1]
AcqTips:
- Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single member” LLCs, those having only one owner.
AcqLinks and References:
- [1] IRS Website – Limited Liability Company
- [2] Nickels and McHugh, “Understanding Business” McGraw-Hill Irwin 2010
