Limited Liability Company (LLC)
The Limited Liability Company or LLC has been a traditional form of business
structure in Europe and Latin America. The LLC was first introduced in the
United States by the State of Wyoming in 1977 and authorized for pass-through
taxation (similar to partnerships and "S" Corporations) by the IRS in
1988. With the recent inclusion of Hawaii, all 50 states and Washington, D.C.
have now adopted some form of LLC legislation for both domestic and foreign (out
of state) Limited Liability Companies.
Many business professionals believe the Limited Liability Company presents a
superior alternative to corporations and partnerships because the LLC combines
many of the advantages of both. With an LLC, the owners can have the corporate
liability protection for their personal assets from business debt as well as the
tax advantages of partnerships or "S" Corporations. It is similar to
an "S" Corporation without the IRS' restrictions.
Advantages
-
Protection of
personal assets from business debt
-
Profits/losses
pass through to personal income tax returns of the owners
-
Great
flexibility in management and organization of the business
-
The LLC does not
have the ownership restrictions of an "S" Corporation making them
ideal business structures for foreign investors
-
If you are the
only member of an Limited Liability Company, you can elect to file a
"Schedule C" as part of your personal tax return.
Disadvantages
-
The LLC often
has a limited life (not to exceed 30 years in many states). Some states
require at least 2 members to form an LLC, and LLCs are not corporations and
therefore do not have stock and the benefits of stock ownership and sales. However,
Delaware only requires the LLC to have one member.
As with the "S" Corporation listing, these lists are not inclusive.
For more detailed information, please be sure to speak with a qualified legal
and/or financial advisor. You may address your questions to our
Tax and Accounting Services
at tax@delawarecorp.us.
Filing Taxes with the IRS as an LLC
(quoted from www.irs.gov)
Due to the number of members in
your limited liability company, you are considered a Single-Member Limited
Liability Company (LLC) as the type of structure applying for an EIN.
* Since you are a single-member
LLC, you will initially be classified as a disregarded entity for the purposes
of filing a federal tax return.
* If the only member of the LLC is an individual, the LLC income and expenses
are reported on Form 1040 (U.S. Individual Income Tax Return), Schedule C, E, or
F.
*
If the only member of the LLC is not an
individual, the LLC income and expenses are reported on the owner/member's tax
return.
* If you do not wish to accept the default classification of disregarded entity,
you can:
*
File Form 8832 (Entity Classification
Election) to elect corporate status, or
*
File Form 2553 (Election by a Small
Business Corporation) to elect S corporation status.
* Single-member LLCs may not file a partnership return.
Delaware Series LLC
Best practices would dictate that every
distinct business or major business asset be segregated into a different
limited liability entity. In an ideal situation, someone with 25 rental
properties would have 25 separate LLCs, one for each property. However, this
isn’t always practical because of administrative
costs and government fees that must be paid for each LLC. What can such a
business owner do to protect his assets from liabilities unrelated to those
assets in a cost-effective way?
For a detailed explanation of the Delaware
Series LLC, click here.
LLC - Limited
Liability Company - must contain the words
Important Note
Regarding the Federal Taxation of the LLC
Before January 1,
1997, the Internal Revenue Service determined whether a limited liability
company would be taxed "like a partnership" or "like a
corporation" by analyzing its legal structure or by requiring the members
to elect the tax status on a special form. Effective January 1, 1997, the IRS
has simplified this process.
Pursuant to these
new IRS regulations, if a limited liability company has satisfied IRS
requirements, it can be treated as a partnership for federal tax purposes. As
such, the LLC is required to file the same federal tax forms as partnerships
and take advantage of the same benefits. However, this is still a highly
technical area, and if you require further information, it is recommended that
you communicate with the Internal Revenue Service or consult a competent
professional such as a tax accountant or attorney.
For more detailed information, please be sure to speak with a qualified legal
and/or financial advisor. You may address your questions to our
Tax and Accounting Services at
tax@delawarecorp.us.