Strategies & Techniques for Estate Planning


Limited Liability Company (LLC)

As a business owner, you will be faced with many important decisions, including what business structure to use in your company formation. While many countries allow the typical structures of sole-proprietorship, partnership, or corporation for business ownership, Americans have the ability to form a limited liability company.

What is a Limited Liability Company?
The following are the main characteristics of a limited liability company (LLC):
LLC is a type of business ownership combining several features of corporation and partnership structures.
LLC is not a corporation or a partnership.
LLC may be called a limited liability corporation, the correct terminology is limited liability company.
LLC owners are called members not partners or shareholders.
In a LLC, the number of members is unlimited and may be individuals, corporations, or other LLC's.

Advantages of Limited Liability Company
Limited Liability: Owners of a LLC have the liability protection of a corporation. A LLC exists as a separate entity much like a corporation. Members cannot be held personally liable for debts unless they have signed a personal guarantee.
Flexible Profit Distribution: Limited liability companies can select varying forms of distribution of profits. Unlike a common partnership where the split is 50-50, LLC have much more flexibility.
No Minutes: Corporations are required to keep formal minutes, have meetings, and record resolutions. The LLC business structure requires no corporate minutes or resolutions and is easier to operate.
Flow Through Taxation: All your business losses, profits, and expenses flow through the company to the individual members. You avoid the double taxation of paying corporate tax and individual tax. Generally, this will be a tax advantage, but circumstances can favor a corporate tax structure.

Disadvantages of Limited Liability Company
Limited Life: Corporations can live forever, whereas a LLC is dissolved when a member dies or undergoes bankruptcy.
Going Public: Business owners with plans to take their company public, or issuing employee shares in the future, may be best served by choosing a corporate business structure.
Added Complexity: Running a sole-proprietorship or partnership will have less paperwork and complexity. A LLC may federally be classified as a sole-proprietorship, partnership, or corporation for tax purposes. Classification can be selected or a default may apply.