Limited Liability Company (LLC)

A Limited Liability Corporation (or more commonly referred to as “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 (earnings are taxed only once). LLCs are governed by the individual states and are recognized in all states. Owners of the company are referred to as members, who cannot be held personally liable for the company’s debts or liabilities.

Advantages

  • Involves less administrative paperwork and record keeping than a corporation.
  • No double taxation: much like a sole proprietorship or partnership, LLCs are treated as a “pass-through” entity for tax purposes. This means that LLCs avoid double taxation.
  • Members are fully exempt from personal liability for business debts and obligations.
  • Unlike S-corporations which cannot have more than 100 shareholders, an LLC can have a virtually unlimited number of stockholders.

Disadvantages

  • An LLC has to be dissolved upon the death or bankruptcy of a member.
  • Not ideal if your goal is to become a publicly listed company at some point.
  • Profits are subject to social security and medicare taxes.
  • Some states exempt corporations from property tax, but not other entities, including LLCs.

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