A Limited Liability Company is a popular business structure because it combines the liability protection offered by incorporation while retaining some of the tax advantages of a Partnership or Sole Proprietorship. The “owners” are referred to as “members.”
Single Member LLCs: An LLC consisting of a single individual. Taxed as sole proprietorship by default.
Multi Member LLCs: Taxed as partnership by default.
Owners Choose How to Distribute Profits: LLC members may choose how their business will divide the company’s profits and losses among its owners allowing for members to consider not only money invested but time and work invested when distributing profits.
In most states LLCs are not taxed as a separate business entity. Instead, all profits and losses are “passed through” the business to each member of the LLC. LLC members report profits and losses on their personal federal tax returns, just like the owners of a partnership would. This is an advantage compared to a C-Corporation.
To form an LLC, you must file the appropriate documents with your state, a process generally done through your Secretary of State’s office.
S Corporation Election Option for Qualifying LLCs: LLC members may elect to have their LLC treated as an S Corporation for tax purposes.
Paul Mocker, CPA
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