LLCs

A Little About the

Limited Liability Company (LLC)

LLC’s are widely viewed as the most flexible entity structure from an ownership, management and taxation viewpoint. LLC’s offer limited liability protection with many of the advantages of Proprietorship, partnership and S Corporations and without some of their inherent disadvantages. LLC profits are not taxed at the entity level, but rather profits are “passed-thru” and taxed only once at the member level.

  • All LLC’s provide limited liability protection to their owners/members. LLC member liability is limited to their investment in the entity. LLC liabilities are limited to the assets and resources of the entity. (Corporations (S and C) and limited partnerships provide similar protection. Proprietorships and general partnerships do not.)
  • LLC’s are owned by members and managed either by members or managers. LLC’s offer more flexibility in these areas than corporations and partnerships.
  • Members may number 1, 2 or more and there is no maximum limit. Members may include individuals, LLC’s, partnerships, corporations, trusts, etc., any or all of which may include resident or foreign individuals or entities. (C Corporations and partnerships offer similar flexibility. Proprietorships and S Corporations do not.)
  • Member interests may include different classes, voting rights, capital or profits interests, etc. offering a wide range of flexibility. (C Corporations and partnerships offer similar flexibility. Proprietorships and S Corporations do not.)
  • LLC’s may be managed by managers, which may include one or more managers or managing members, or a board of managers or members. Managers (including members acting as managers) are protected by the “business judgment rule” for decisions made in good faith, but may be individually liable for gross negligence or willful misconduct in their actions as managers. (LLC’s may consider the appointment of entities, not individuals, to serve in management roles and/or the procurement of directors and officers insurance coverage in order to provide additional protection to managers against individual liabilities.)
  • LLC’s offer flexibility as to their tax treatment by permitting members to elect to be taxed as
    • Proprietorship (this is the default election for single-member LLC’s), revenues and expenses are reported and taxed at the individual level directly through Form 1040, Schedule C.
    • Partnership (this is the default election for multi-member LLC’s), revenues and expenses are reported (not taxed) at the entity level through Form 1065 and passed through by Form 1065-K-1’s and taxed at the member level on Form 1040, Schedule E.
    • S Corporation (this requires an affirmative tax election), revenues and expenses are reported (not taxed) at the entity level through Form 1120S and passed through by Form 1120S-K-1’s and taxed at the member level on Form 1040, Schedule E.
    • C Corporation (this requires an affirmative tax election), revenues and expenses are reported and taxed at the entity level through Form 1120 and dividends or distributions, if any, are reported by Form 1099’s and taxed at the member level on Form 1040, Schedule B (this tax at the entity level and the dividend level is commonly referred to as the “double taxation” effect inherent in C Corporations).
  • For any entity offering an investment opportunity to more than 1 investor, federal and/or state securities laws may apply and may require certain disclosures or registrations in connection with such an offering. Please consult a licensed attorney for advice concerning your specific circumstances.