By Dean ‘Mac’ Nichols, Attorney
This is the last of a three part series on different corporation types.
An LLC, or a Limited Liability Company, is a hybrid type of legal structure allowed by state statute. This means that each state has different regulations, so the rules for LLCs in Virginia may differ from those in other states.
LLCs provide the limited liability benefits of a corporation and the tax efficiencies and operational flexibility of a partnership.
The owner of an LLC is referred to as a member and, depending on state law, members can consist of one or more individuals, corporations, or other LLCs. Unlike corporation shareholders, LLCs aren’t taxed as separate business entities, so all profits and losses are passed through the business to LLC members. Although, under the check the box rules, you can elect to have an LLC taxed as a C or S corporation.
Here are some of the things you need to know about creating an LLC:
• LLCs protect members/owners from personal liability for the business actions of an LLC. If the LLC incurs debt or is sued, the personal assets of members are not usually subject to the LLC’s liabilities.
• Federally, an LLC is not a tax paying entity. This means that the business itself is not taxed; rather, the income is passed to the LLC’s members and they pay the tax on their personal income tax return. It’s important to remember that, even though LLCs do not pay tax at the federal level, some states do tax LLCs at the entity level.
• You can elect S-corporation or C-corporation status for your LLC, for tax purposes. An LLC can remain a limited liability company from a legal standpoint, and for tax purposes can act as an S-corporation.
• Within an LLC, there are less profit-sharing restrictions. This means that members can distribute profits (and losses) the way they see fit.
• LLCs typically require less recordkeeping. One of the greatest advantages of an LLC is its ease of operation. Compared to other types of business entities, there’s less registration paperwork and smaller start-up costs for an LLC.
Does an LLC sound like a good fit for your business needs? Let us help you set up your business today.
