![]() ![]() Pass-through taxation: LLCs typically do not pay taxes at the business entity level.When managed by appointed managers (a “manager-managed” management structure), the LLC resembles a corporation, where business management is the responsibility of the directors and officers rather than the owners (shareholders). When an LLC is managed by members (a “member-managed” management structure), owners oversee daily business operations. Corporations, on the other hand, are managed by a board of directors, not shareholders. Management structure: Members can manage the LLC or elect a management group to do so.S corporations (which is a corporation that has elected to be taxed as a pass-through entity under Subchapter S of the Internal Revenue Code) are much more restricted in who can be a shareholder, and there is a maximum limit on the number. Flexible membership: Members can be individuals, partnerships, trusts, or corporations, and there is no limit on the number of members.For more information, see How to Avoid Piercing the Corporate Veil. Note: It is possible for an LLC (as well as a corporation) to lose its limited liability. The personal assets of sole proprietors and general partners, on the other hand, can be pursued against the business’ debts. Creditors cannot pursue the personal assets (house, savings accounts, etc.) of the owners to pay business debts. Limited liability: Members (which is what the owners of an LLC are called) are shielded from personal liability for acts of the LLC and its other members.The benefits of creating an LLC-as opposed to operating as a sole proprietorship or general partnership, or forming a corporation-typically outweigh any perceived disadvantages. The owners, also called members, must then report the income or loss on their personal tax returns and pay any necessary tax. Any LLC income or loss as shown on this return is passed through to the owner(s). The LLC allows for pass-through taxation, as its income is not taxed at the entity level however, a tax return for the LLC must be completed if the LLC has more than one owner. Therefore, owners cannot typically be held personally responsible for the business debts and liabilities. As with corporations, the LLC legally exists as a separate entity from its owners. Understanding the benefits and disadvantages of an LLC, how to start an LLC, where to form your LLC and other key topics is essential for business success.Ī Limited liability company (LLC) is a business structure that offers limited liability protection and pass-through taxation. A limited liability company (LLC) is a popular choice among small business owners for the liability protection, management flexibility, and tax advantages this form of business entity often provides.
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