| Limited Liability. Similar to
a corporation, all of the members (owners of an LLC are
called members) of an LLC enjoy limited personal
liability. Generally owners are not exposed to
legal liability for the debts of the business, you only
risk your share of the investment in the business.
Tax Flexibility. An LLC with two or
more members can choose how it wishes to be taxed. It
can have the pass-through taxation of partnership or
elect to be taxed as a corporation. Most LLC’s will
choose to have pass-through taxation in order to have
the profit or losses of the business pass-through to the
to the tax returns of it’s individual members. Electing
pass-through taxation avoids the possibility of the
double taxation associated with traditional
corporations.
For LLC’s with only one member you can elect to be
taxed as a sole proprietorship or a corporation. Most
single member LLC’s will elect to be taxed as a sole
proprietorship to avoid double taxation, however, many
are electing to be taxed as an S Corporation which also
allows for pass through taxation. Electing to be taxed
as a Sole Proprietorship would mean that profits and
losses from the LLC will be reported on your individual
tax return on Schedule C.
Flexible Management Structure. An
LLC can be managed by it’s members or it can designate a
manager or managers who will run the LLC. It is common
for the members of an LLC to be closely involved in the
running of the day to day affairs of the business, this
is referred to as a member managed LLC. Generally an LLC
with only a few members will be member managed. If an
LLC chooses to be run by a manger or managers it is
referred to as a manager managed LLC. A member of the
LLC can also act as a manager or a group of members can
act as Managers.
Flexible Distribution of Profits and
Losses. Members of an LLC can distribute
profits and losses any way they choose. You do not have
to divide up the profits and losses according to the
assets contributed by each member.
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