Limited Liability

The protection generally given to a corporate shareholder, limited partner, or Managing Member(s) of a Limited Liability Company (LLC). 

In a properly formed and managed Corporation or LLC, a court judgment against the business should not affect the personal assets of its owners and if it does, it will generally be limited to the actual initial investment on part of the owners which are Managing Member(s) in the LLC.

Important Information on Liability

LLC formation can help you separate yourself from your business, protecting your personal assets, such as your home, in the event of a judgment against the company.

Of course the business will still need to apply standards that are necessary to remain "untouchable" under the Limited Liability protections offered by the varied State LLC Acts where the LLCs are originally formed.

It should be noted, that this Limited Liability Protection does not mean that it will protect you in all cases; for example where negligence is proven; in such cases, the Limited Protection may, of course, be very limited indeed.

The State LLC Act, like other business related Acts and Statutes, are not designed to protect you from everything.

No known entity will 100% protect you when you are negligent and where intent can be shown in a Court of Law.

Just like with everything else, you do something purposefully or you break the law, or you just don't follow the rules; of course the protection is out-the-window and won't help you.

LLC Recognition by All 50 States and The District of Columbia

All 50 states and the District of Columbia now recognize this popular business type and it is growing more popular all the time; given of course necessary education. 

LLC Tax Related Issues Including
IRS Entity Classifications & Elections

A Multiple Member Limited Liability Company (LLC) combines the tax flexibility of a General Partnership with the personal liability protection of a corporation.

A Single Member LLC combines the tax flexibility of a Sole Proprietorship. And, unless an IRS Approved Election is made to reclassify the entity for other tax filing purposes (C or S Corp.), the same tax consequences that relate to a Sole Proprietorship, also relate to a Single Member LLC.

Of course the Managing Member of the Single Member LLC will, either case, retain the Limited Liability Protections under the States LLC Act, where the entity was originally formed.

In both cases above, unless necessary various elections are made, Managing Members of both a Single and Multiple Member LLC, would be subject to Self Employment Taxes when filing their personal income taxes.

When it comes to a Multiple-Member LLC, owners (referred to as Managing Members), report their share of business profits and losses on their personal income tax returns, similar to tax reporting for a general Partnership.

Unless proper IRS Approved Elections are made (to reclassify the Entity, to that of an S or C Corp.), the same form used to file taxes for a Partnership, IRS Form 1065, is the same one a Multiple Member LLC would use in filing its income taxes as well.

If the Multiple or Single Member has elected to be classified as an S Corp., it would file IRS Form 1120S the same Form used for an S Corporation.

In the case, where the the Multiple or Single Member LLC has elected to be classified as a C Corp., it would file IRS Form 1120 the same Form used for a C Corporation.

Why do many thousands of Business Owners and Entrepreneurs Choose to Form LLCs

This business structure has many advantages, including:

Owners have limited liability for business debts and obligations.

Owners can report their share of profit and loss on their individual tax returns without filing a separate corporate tax return.

Owners do not need to be U.S. citizens or permanent residents.

LLCs do not need to hold annual meetings or record meeting minutes (though we recommend it).

LLCs can be owned by individuals or other companies.

LLC vs. Corporation Comparison

Has no limit to the number of owners
Owners can report profit and loss on their individual tax returns

Not required to hold annual meetings or record minutes

    May issue shares of stock to attract investors
    Corporate income splitting may help lower overall tax liability

Managing Members cannot engage in corporate income splitting to lower tax liability.

LLC's cannot issue stock in Public Offerings or otherwise.

Managing Members of LLC's are subject to Self Employment Taxes. This may not be true if the LLC elects to be treated for tax related purposes as an S Corp.

In electing this treatment, it is for Tax Purposes Only. The LLC still remains an LLC for all other purposes and intent, and the same in the eyes of the State, and subject to that State's LLC Act,  where it was originally formed.

LLC's being classified as an S-Corp., may not have more than 100 Managing Members.

LLC's being classified as S-Corp., may not have Non-Resident Alien Managing Members when making the Election.

Double taxation of corporate profits and shareholder dividends.

At least one time per year, the Corporation must hold annual meetings and record minutes S Corporations have overall restrictions on number of owners which are currently limited to 100 and a controlling Officer may not be a Non-Resident Alien.

In many rulings from the Internal Revenue Service, Officer's of S-Corps and C-Corps. both, are considered employees of the Corporation and subject to withholding of income taxes on payroll.

Important Notes

LLC owners can elect for the IRS to tax the LLC as a sole proprietorship, Partnership, C Corporation, or S Corporation.

Single Member LLC cannot elect to be treated as a Partnership as a Partnership has more than one Person or Entity, in some cases.

Owners make this election through the IRS after the company forms the business with the state. Time limits may apply in many cases; particularly in electing to be classified as an S Corp.