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Limited Liability Company is a hybrid entity that combines the tax flow-through aspects of a partnership with the liability protection of a corporation or a limited partnership that can manage the business.


Advantages

  • Limited liability - a creditor may not seek satisfaction of any limited liability company debt against the personal assets of any member.
  • Tax advantage - the members each pay their share of tax on their share of profits avoiding double taxation of LLC profits.
  • Number and type of investors - unlimited, not restricted like an S corp.
  • Non-transferable interest - a member may not transfer his voting interest without concurrence of all remaining members.
  • Management - The management of the business and affairs of an LLC may be conducted by the members or, if the members agree, may be vested in a manager or managers.
  • Continuity of life - the term of existence must be stated in the articles of organization. In some states perpetual duration is accepted.
  • Contributions - members contribute in the form of cash, property, services, or promises to contribute cash or property or to perform services.

Disadvantages

 

  • Relatively new form of business entity, and some tax and legal issues are not yet resolved.
  • Your state may impose income taxes on LLC’s even though the IRS doesn't.
  • Converting an S or C Corporation to an LLC may carry too heavy a tax price.
  • Unclear by most if you are required to hold and document manager/member meetings.

Tax Implications

  • Taxed by the IRS like general partnerships; the LLC does not pay taxes, but instead passes its profits and losses through to its individual owners. However, an LLC may choose to be taxed like an S corporation.
  • The LLC must file Form 1065, U.S. Partnership Return of Income, unless the LLC elects to be taxed as an S corporation.
  • The LLC must also annually issue members IRS Form K-1, showing their share of the business's profit or loss.
  • Single-member LLCs are treated like sole proprietorships and must report income on Schedule C unless the LLC elects to be taxed as an S corporation.
  • In CA there is a $800 tax for doing business for the first year.

 

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The above information is compiled for your convenience from our research of other publications including State and Federal agencies.  Vision Interface can not give legal advice, nor do we claim to be CPA’s or attorneys.

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