limited liability company
One of the newest types of business structures is known as the limited liability company (LLC). LLCs combine some of the best aspects of sole proprietorships and partnerships with the liability protections of corporations. Due to the short history of LLCs each state handles them differently, however many of them have the similar rules and filings.
First, it’s important to understand the benefits of a LLCs. Due to their structure they are typically treated as pass-through entities in terms of taxation. Pass-through entities allow a single tax for the business owner(s) unlike corporations which require double taxation. To add to the pass through nature, depending on the type of business being conducted by the LLC, the owners may be entitled to a 20% deduction on their federal annual tax (phased out and disappears at a certain amount). Perhaps the largest benefit is the liability protection that is created by forming an LLC. LLCs are, for the most part, afforded the same liability protections that corporations are given.
Some disadvantages to LLCs include the formation which requires different articles of organization to be filed, and filing costs money. Another disadvantage is their lifetime, depending on the state, if a member departs an LLC it may cease to exist. Due to the new nature of LLCs it is important to check with the state on their particular regulations of LLCs.
If you think you may want to form an LLC, but are unsure how or if it is right for you, feel free to contact us at the Center for Financial, Legal & Tax Services, Inc.