1. What is the advantage of an LLC over a corporation?
One of the primary reasons individuals form corporations is to protect their personal assets in case of a legal judgment against the company. Unfortunately, owners of corporations may be taxed twice on their income; once at the corporate level, and again at the personal level when dividends are paid.A Limited Liability Company (“LLC”), on the other hand, offers both personal asset protection and the elimination of corporate-level taxes. In addition, the record-keeping requirements of an LLC are usually less burdensome than those of a corporation.
2. What is the advantage of an LLC over an S corporation?
While the S corporation’s special tax status eliminates double taxation, it lacks the flexibility of an LLC in allocating income to the owners.
For example, the owner of 25% of an S corporation normally pays 25% of the taxes on reported income. On the other hand, LLC owners are free to divide income and tax liability among themselves, within the constraints of Internal Revenue Service regulations for distribution of partnership income. Equal partners may change the allocations of profit or loss from year to year to benefit their individual tax needs.
In addition, LLCs have no ownership restrictions. An S corporation limits the number of owners to just thirty-five (35) and prohibits corporate and foreign ownership.
3. Why is the LLC superior to a Joint Venture or General Partnership?
The personal assets of joint ventures and other forms of general partnerships are totally exposed to lawsuits stemming from the actions of any one partner.All personal assets of the LLC partners are legally protected. Partnerships of every form and LLCs enjoy a great deal of flexibility compared to corporations when allocating their tax attributes.
4. Why is the LLC superior to a Limited Partnership?
Limited partners are protected from business-related lawsuits that may place their personal assets at risk. However, this structure prevents them from actively participating in the management of the business. The non-limited partners’ personal assets are exposed. LLCs are designed to protect all partners’ personal assets while imposing no limit on their management activity.