Limited Liability Company
What is a limited liability company?
The limited liability company or LLC is not a partnership or a corporation. An LLC is a distinct type of business that offers an alternative to partnerships and corporations, by combining the corporate advantages of limited liability with the partnership advantage of pass-through taxation.
Do I need an attorney to form an LLC?
No, an attorney is not a legal requirement. You can use our service to form your LLC and save money on attorney's fees. However, if you are unsure of what entity type would be most beneficial to your business, consult our accounting department Contact Us.
What should I name my LLC?
Choose the name of your LLC carefully. It is very important that your name portray the image you want for your new company. Legally, the name you select must not be "deceptively similar" to any existing company or must be "distinguishable on the record" of your state.
For example, if an LLC named Food LLC exists in your state, you probably would not be allowed to name your business Food Limited Liability Company. It is possible that the name you select will not be available; therefore, we ask for a second choice on the LLC order form.
Additionally, most states require that the name you select shows your business is a limited liability company, by including the words "Limited Liability Company," or the abbreviation LLC.
How many people are needed to form an LLC?
The IRS does allow one member LLCs to qualify for pass-through tax treatment; however, taxation of one person LLCs at the state level may be different.
How is an LLC taxed?
A state-registered LLC can be taxed for federal income tax purposes as a partnership. Under the check-the-box rules, an LLC can elect partnership status to avoid taxation at the entity level as an "association taxed as a corporation." If an LLC is not taxed as a partnership, it will be taxed at the entity level similar to a standard or C corporation.
The state income tax treatment of LLC profits and losses may or may not mirror the IRS tax treatment depending on the state. For specific information on your state rules visit your state's web site.
What are the advantages of an LLC?
- Pass-Through Taxation. LLCs allow for pass-through taxation. This means that earnings of an LLC are taxed only once. The earnings of an LLC are treated like the earnings from a partnership, sole proprietorships and most S corporations.
- Limited Liability. The LLC owner's liability is generally limited to the amount of money which the person has invested in the LLC. Thus, LLC members are offered the same limited liability protection as a corporation's shareholders.
- Flexible Management Structure and Flexible Ownership is Permitted. Like general partnerships, LLCs are generally free to establish any organizational structure agreed on by the members. Thus, profit interests may be separated from voting interests.
What are the disadvantages of an LLC?
The disadvantages of an LLC include:
- More Paperwork Than an Ordinary Partnership. Documents must be filed at the state level to create an LLC, which is not the case with a general partnership.
- Dissolution Date. Some states require that a dissolution date be listed in the articles of organization. This date may be amended. Further, certain events, such as death of a member, a member leaving, bankruptcy, etc. can be a dissolution event. A corporation has unlimited life and these events are not dissolution events for a corporation.
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