LLCs
“A Company without double taxation”
What is an LLC? A Limited Liability Company (LLC) may elect to pass gains or losses, credits or deductions, onto the members of the LLC in much the same manner that partnerships are taxes. An LLC status avoids the corporate potential problem of “double taxation.” Individual members may benefit from a reduction in their taxable income if the corporation operates at a loss. Despite their unique tax treatment, LLC’s maintain full corporate attributes like limited liability. If you are not sure about what type of corporation to start with, this would be the one to choose. An LLC can later be converted to a C corporation, much easier than converting a C to an LLC.
LLC General Characteristics
- Member instead of shareholders.
- Members do not have to be citizens of the United States.
- A Managing Member runs the LLC.
- Special action necessary–all members must consent to LLC status.
- Special action necessary–the corporation must file IRS Form to show the profits or losses passed to the members.
- Tax advantage–may avoid double taxation by passing gains and losses on to members.
LLC Advantages
- Corporate attributes–offer members limited personal liability, the same ones that a C corporation offers.
- Tax advantage–corporate income tax payments are not required. Gains and losses are passed on to members who pay taxes in a manner similar to partnerships.
- Early loss benefit—LLC’s may operate at a loss in their first years. Members may benefit from a reduction in their personal taxable income by receiving their share of corporate losses.
- Shareholder restrictions—foreigners, corporations, and partnerships can be members of an LLC
LLC Disadvantages
- Corporation continuity – may have a set ending date, depending upon the state.
If you want to know how to purchase an LLC, you should first consider where to purchase one. The first LLC statutes in the United States were instituted in Wyoming in 1977. Since Wyoming has had limited liability companies available longer than any other state and has strong laws protecting members and managers of an LLC, we feel it is the state of choice for establishing LLC’s.