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Should You Incorporate? – Part II (LLCs)

by Carla Palmer 26. January 2011 14:37

In my previous blog, I discussed the pros and cons of incorporating, including filing as an “S” Corporation. Now let’s look at LLCs, or Limited Liability Companies

A Limited Liability Company blends elements of partnership and corporate structures. Because LLCs provide the benefits of limited liability and create “pass through” taxation, without being subject to the many restrictions on “S” Corporations, forming an LLC is often seen as a better option.

Limited Liability Companies are are often mistakenly referred to as Limited Liability Corporations. These businesses are not incorporated. But they do have to file “Articles of Organization” with their applicable state agency.

Come tax time, an LLC can elect to be taxed as a sole proprietor, partnership, “S” corporation or “C” corporation (as long as they would otherwise qualify for such tax treatment), providing for a great deal of flexibility.

Owners of the LLC (called “members”) are protected from some or all liability for acts and debts of the LLC, depending on state shield laws.

The regulations regarding Limited Liability Companies continue to evolve. Some early statutes did not allow LLCs to have just one member; the structure was considered to be a form of partnership and needed at least two. All states now allow single-member LLCs, although differences can exist in the way they are treated versus LLCs with two or more members.

A more recent change is the introduction of Series LLCs, which allow companies to have various series or “cells”, and segregate the assets and liabilities of each series.

NOTE: Not all states view LLCs the same way when it comes to liability. Always research the laws for your particular state, and consult a tax attorney, before setting up any business structure.

- Carla Palmer

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