This
form of corporation is a hybrid entity. It is treated like a
corporation for
liability purposes, but is treated like a partnership for federal tax
purposes.
In
other words, the owners in an LLC do not have personal liability for
the
company's debts, and the corporation does not get taxed, the income
"flows
through" to the owners. Unlike "S" corporations, LLC's do not
limit the number of owners or restrict their type. LLC's also allow for
disproportionate distributions. "S" corporations only have one class
of stock and gains and losses must be allocated in proportion. Unlike
limited
partnerships, LLC's protect all owners from liability and allow all the
right
to participate in management.
There
are certain groups that LLC's are especially helpful to:
A)
Holders of real estate
i)
Want limit liability - environmental hazards.
ii)
Better tax implications than with "S" corporations.
iii)
All can be involved in management.
B)
Holding Companies - Joint Ventures
i)
Corporations can be members.
ii)
Insulates parent corporation.
iii)
Parent corporation can avoid double taxation.
C)
Estate Planning
i)
Family owned LLC can be used to shift income.
ii)
More flexible than an "S" corporation with special classes of
ownership and management control.
D)
Professional and Service Businesses
Controlled
by state statute.
There
are some disadvantages to forming LLC's. Some of these are:
A)
LLC's cost more to set up.
B)
Transferability of an owner's interest is restricted.