Is an LLC best?

I'm not a lawyer, I'm a judge broker. This article is my opinion and not legal advice based on my experience in California, and laws vary by state. If you ever need legal advice or a strategy to use, please contact an attorney.

A Limited Liability Company (LLC) is a state-defined entity that can be considered a hybrid business entity that has some functions in both partnerships and companies.

LLCs are primarily popular because they are more flexible and easier to operate than type S or C companies. Some people think that LLCs save tax, but often they do not.

In some ways, LLCs are similar to companies. Both LLCs and companies provide basic liability protection to owners and / or shareholders and officers.

One way LLCs are different is that LLCs have owners and companies have shareholders. An LLC may have several owners, called "members" or "partners", named members for the remainder of this article.

An LLC's partnership agreement defines the membership of the LLC and includes an ownership agreement.

LLCs may have at least one executive member and may also choose to appoint officers. LLCs usually have an operating agreement that describes the function of the LLC. LLC members can be any combination of individuals, companies and other LLCs.

Double taxation occurs when a company first pays tax on their profits; and then their officers, employees and shareholders are again taxed on their individual income.

Historically, one of the primary reasons the LLC was chosen was their potential tax savings. LLC avoids the potential double taxation problems that C-type companies may have.

Double taxation is not really an important economic issue now because the IRS has captured and removed most of the way in which taxes could be saved on both ordinary and creative income types.

Now, there seems to be no tax advantages or disadvantages to forming an LLC. No matter what company structure or partnership one chooses, they have to pay taxes. Tax payments can be broken down in different ways, but income is taxed in some way.

Sole proprietorships LLCs are taxed the same as sole proprietorships and file the same 1040 tax return and Form C as sole proprietorship.

Unit owners rarely get the same liability protection that larger companies get. Multiple owners LLCs may be able to provide better liability protection than some companies.

Multiple owners repze llc are taxed the same as partnerships. Partners in an LLC file the same 1065 partnership fee as would be done with any conventional business partnership.

Owners of LLC are considered to be self-employed and must pay a self-employed tax of approx. 15% of the company's total net income.

In C or S companies, only the salary paid to employees is subject to taxation. The IRS monitors wages and defines income as wages if they believe a company does not pay adequate wages. Taxation of wages is expensive.

The real advantages of LLCs over S or C companies are that they are:

1) Much more flexible in ownership.
2) Easier to operate.
3) Not subject to so many company formalities or reporting requirements.
4) Owners of an LLC can distribute profits as they please.

Usually, the state, county, and city require LLCs to pay them the same taxes, fees, and registration fees that companies must. Many states also require LLCs to hire an accountant to prepare LLCs tax returns.