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LIMITED LIABILITY COMPANIES << Back | Our Fees | Learn More >>Advantages of an LLC LLCs have several distinct advantages, including the following: Limited Liability. The members of an LLC enjoy limited liability. An LLC is treated as a separate legal entity from its members, and therefore, its assets are considered separate and apart from the assets of the members. As a result, assets of the members are legally protected from the LLC's creditors, monetary judgements and so on. Pass Through Taxation. When properly organized, an LLC enjoys the advantage of "pass through" taxation, whereby all business profits are "passed through" to the individual members, thereby avoiding taxation at both the corporate and member level (i.e, double taxation). In the alternative, however, the LLC can elect to be treated like a regular corporation for tax purposes. Absence of Corporate Formalities. Corporations must hold annual board meetings, maintain corporate minutes and file annual reports. In contrast, the members and managers of an LLC are not required to hold such meetings. In fact, if organized correctly, an LLC can be entirely managed by the operating agreement drafted between the members. Deduction of Losses. Provided a member is an active participant in the business of an LLC, operating losses of the LLC may be deducted against the member's regular income, at least to the extent permitted by law. Corporate Members. Corporations are allowed as members of an LLC. This additional level of tiered ownership increases the limited liability advantage of an LLC. Lack of Ownership Restrictions. Unlike an S Corporation which cannot have more than 100 stockholders, there is no limit to the number of members allowed by an LLC. Distinct Legal Entity. Since an LLC is treated as a legal entity which is separate and distinct from its members, the LLC can open a bank account in its own name. In addition, the LLC can obtain its own tax identification from the IRS. |
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