I am not an attorney, I am a Judgment Broker. This article is my opinion, from my California experiences, and laws vary in each state. If you ever want legal advice or a strategy to use, please contact a lawyer.
Limited Liability Companies (LLCs) are state-defined entities that can be thought of as being a hybrid business entity, having a few features of both corporations and partnerships.
LLCs have become popular mostly because LLCs are more flexible, and are simpler to operate than type C or S corporations. Many believe LLCs save on taxes, but most often, they do not.
In certain ways, A LLC is similar to a corporation. Both corporations and LLCs offer basic liability protection for owners and/or shareholders, and officers.
One way a LLC is different, is that LLCs have owners, and corporations have shareholders. A LLC may have more than one owner, called ?members? or ?partners?, called members, in the remainder of this article.
A LLC?s partnership agreement describes the member relationships in the LLC, and includes an ownership agreement.
A LLC can have at least one managing member, and can also decide to appoint officers. LLCs usually have an operating agreement, that describes the LLC?s function. LLC members may be any mixture of corporations, individuals, or other LLCs.
Double taxation happens if a company first pays taxes on their profits; and then their employees, officers, and shareholders, get taxed again for their individual incomes.
In the past, one of the biggest reasons that LLCs were chosen, was for the possible saving on taxes. A LLC avoids the potential double-taxation issues which C-type corporations may have.
However, double taxation isn?t really an important financial issue these days, as the IRS has caught up, and removed nearly all of the ways taxes could be saved on both creative and common types of income.
These days, it seems there is no tax disadvantages or advantages to starting a LLC. No matter which corporate structure or partnership one chooses, they need to pay taxes. Tax payments may be split up in different ways, however one way or another, income gets taxed.
Single-owner LLCs are taxed as if they were sole proprietorships, and file the same 1040 tax return and Schedule C, as a sole proprietor must do.
Single-owner entities rarely get the same liability protection that larger companies get. Multi-Multiple-owner LLCs may potentially provide better liability protection than many corporations.
Multi-owner LLCs are taxed as partnerships. Partners in the LLC file the same 1065 partnership tax form, as needs to be done with any conventional business partnership.
Owners of LLCs are considered to be self-employed, and must pay a self-employment tax of approximately 15%, on the total business net income.
In S or C corporations, only the salary paid to employees is subject to employment tax. The Internal Revenue Service monitors salaries, and defines income as salary, if they think a company isn?t paying adequate salaries. Payroll taxation is expensive.
The actual advantages of LLCs over C or S corporations is that they are:
1) Much more flexible in ownership. 2) Easier to operate. 3) Not subject to as many reporting requirements or corporate formalities. 4) Owners of a LLC can distribute profits any way they want.
Most often, the state, county, and city, requires a LLC to pay them the same taxes, fees, and registration fees, that corporations must. Also, many states require LLCs to hire an accountant to prepare the LLC?s tax returns.
A LLC no longer saves you money. The best reason to choose to form a LLC, is the flexibility they offer.
This entry was posted on Wednesday, February 8th, 2012 at 8:18 am by Guest Author and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.
Source: http://centired.com/2012/02/llc-advantages/
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