Limited Liability Company – Is an LLC Right for Your Company

Forming An LLCAn LLC — or Limited Liability Company — is, in some ways, a hybrid of a corporation and a partnership-it is a relatively recent entity type, initially offered by the states as a way to “bridge the gap” between the wide taxation and structural differences of corporations and partnerships. Below is some information for you to consider when deciding whether forming an LLC is best for you.OwnershipAn Limited Liability Company has less restrictions on ownership structure than other entity types.· There is no restriction on the amount of owners-called “members”-an LLC may have.· An LLC may be owned by non-US citizens or resident aliens.· An LLC may be owned by other business entities; in other words, while members are typically individuals, a member could also be a separate corporation or LLC.Federal taxesThe IRS does not recognize “Limited Liability Company” or “LLC” as a tax classification for federal tax purposes. You will be required to file your federal taxes as a corporation, a partnership, or a disregarded entity.1. Single-member LLCIf your LLC is owned by only one member, you have the choice to file your federal taxes in one of two ways:· CorporationIn order to be treated as a corporation for tax purposes, you must file Form 8832 and choose “corporation” as the classification for your LLC.· Single-Member “disregarded entity”A disregarded entity means that the LLC is not considered a separate entity from the member. Taxes will be reported and paid under either the name and EIN of the LLC, or the name and EIN of the member/owner. Either way, the tax responsibility lies solely with the single member.2. Multiple-member LLCIf your LLC has two or more members, you can file your federal taxes in one of two ways:· CorporationJust as in a single-member LLC, you must file Form 8832 and choose “corporation” as the classification for your LLC in order to be treated as a corporation for federal tax purposes.· PartnershipIn order to be taxed as a partnership, you must file Form 8832 and select “partnership” as your classification.Division of profitsAn LLC can divide profits among the members any way it sees fit; the percentage of capital each member initially contributed has no bearing on the division of profits. Compare this to an S corporation, in which an owner who donated, for example, only 20% of the capital would not be allowed to take more than 20% of the profits.When choosing the business type that’s best for you, you should carefully weigh all of your options and how they’re going to affect your taxes, flexibility, and bottom line. It’s always best to consult with a lawyer or legal advisor to help you with the ins and outs of forming a business.