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.
Limited
liability companies, or LLCs, are becoming more and more popular,
and it's easy to see why. They combine the personal liability
protection of a corporation with the tax benefits and simplicity
of a partnership. In addition, they're more flexible and require
less on going paperwork than corporations. We can help you quickly
and easily set up a new LLC or convert your existing business
into an LLC
An
LLC is owned by its members. They are analogous to partners in
a partnership or shareholders in a corporation, depending on how
the LLC is managed. A member will more closely resemble shareholders
if the LLC utilizes a manager or managers, because then the members
will not participate in management. If the LLC does not utilize
managers, then the members will closely resemble partners because
they will have a direct say in the decision making of the company.
A
member's ownership of an LLC is represented by their "interests,"
just as partners have "interest" in a partnership
and shareholders have stock in a corporation.
Managing LLC
An
LLC may be managed by its members (owners) or by selected managers.
If the LLC is to be managed by its members, it operates much
like a partnership. Each member has an equal say in the decision
making process of the company.
If
the members choose, they may elect a manager or managers to
act in a capacity similar to a corporation's board of directors.
These managers are in charge of the affairs of the corporation.
Member management is the normal default rule of state law. This
means that if managers are not selected in the articles of organization,
the members will direct the affairs of the LLC.
LLC Taxed
A
state-registered LLC can be taxed for federal income tax purposes
as a partnership. 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.
Organizational Structure
An
LLC is owned by its members. They are analogous to partners
in a partnership or shareholders in a corporation, depending
on how the LLC is managed. A member will more closely resemble
shareholders if the LLC utilizes a manager or managers, because
then the members will not participate in management. If the
LLC does not utilize managers, then the members will closely
resemble partners because they will
have a direct say in the decision making of the company.
A
member's ownership of an LLC is represented by their "interests,"
just as partners have "interest" in a partnership
and shareholders have stock in a corporation.
LLC Advantages
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.
LLC Disadvatages
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.
Newer
Entity Type
The LLC is a newer entity, and people are not as familiar with
the LLC as a corporation.
Forming LLC
After
you decide to form an LLC, articles of organization must be filed
with that state and initial fees must be paid. After
your articles of organization are filed, your LLC should have
an organizational meeting where an operating agreement is adopted,
interest certificates are distributed, and other preliminary matters
are completed.LLC
kit includes all of the information and paperwork to make this
process easier.
Publications
A few states require notice to be published in a newspaper that
an LLC has been formed. States with this requirement include:
Pennsylvania
(corps only)
Georgia
(corps only)
Arizona
(corps and LLCs)
Nebraska
(corps and LLCs), and
New
York (LLCs only).
Federal
Tax ID Number
A federal tax identification number, also known as an employer
identification number or EIN, is basically a social security
number for businesses. It is the number the IRS uses to identify
the business, and it must be included on tax filings the business
makes. Infotax Square can assist with the preparation and/or
obtainment of your company's tax ID number.
If
you operate your business as a sole proprietorship or partnership
and are now looking to incorporate or form a limited liability
company (LLC), you must obtain a new EIN for your business.
Members
in 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.
Ready
to Form an LLC
To
form an LLC, proper formation documents, called the articles of
organization or certificate of certificate of organization, must
be filed with the appropriate state, agency and the necessary
state filing fees paid. We will prepare, complete and file these
administrative tasks quickly and effectively, all you need to
do is complete our simple order form.
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