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LLC vs. other Business Structures

LLC vs. Corporation

A traditional corporation differs from an LLC in several respects. A corporation is a separate entity for tax and other purposes. The major disadvantage of a corporation is double income taxation of its income. The corporation itself is taxed when it receives income and the shareholders are taxed when the income is distributed out to them in the form of dividends. (For income tax purposes, corporations are referred to as C corporations, because they are taxed under subchapter C of the Internal Revenue Code.)

In contrast, income of an LLC is only taxed once at the member level. A corporation has to observe more formalities than an LLC. For example, a corporation must hold annual meetings of directors and shareholders for the election of officers and directors and file an annual report. Like an LLC's members, the shareholders of a corporation do not have personal liability for the corporation's debts....more info

LLC vs. S Corporation

Like LLCs, S corporations are not treated as separate entities for income tax or other purposes. Thus, like LLC members, S corporation shareholders report on their personal income tax returns the corporation's income, losses, deductions, and credits. (S corporations are governed by subchapter S of the Internal Revenue Code.) Thus, there is no double taxation of an S corporation and its shareholders.

Although not separately taxed, an S corporation must annually file Form 1120-S, U.S. Income Tax Return for an S Corporation, with the IRS. S corporations are subject to some restrictions that do not apply to LLCs. For example, S corporations cannot have more than 100 shareholders. Certain trusts and nonresident aliens cannot be shareholders of S corporations. Another restriction is that an S corporation cannot have more than one class of stock. S corporations are incorporated under the same state statutes as regular corporations. . An S corporation has to observe the same formalities as a regular corporation. An S corporation must hold annual meetings of directors and shareholders for the election of officers and directors. An S corporation must also file an annual report.

Like the members of an LLC, the shareholders of an S corporation do not have personal liability for the S corporation's debts....more info

LLC vs. Partnership

A partnership is a business entity through which two or more individuals operate a business as partners. The personal liability of partners for the obligations of the partnership depends on the type of partnership. In a general partnership, all the partners have personal liability for the partnership. In a limited partnership, the general partners, who manage the partnership, have personal liability and the limited partners do not have personal liability.

Unlike corporations, S corporations, and LLCs, where there is no personal liability, a partnership does involve personal liability for general partners. To get around that, many limited partnerships are structured so that the general partner is an LLC; the LLC is liable for the partnership's obligations but the LLC's members are protected from personal liability. A partnership is not considered a separate taxable entity for federal income tax purposes. The income, losses, deductions, and credits of a partnership flow through to the partners individually.

Using the partnership form avoids double taxation at both the entity and owner levels. Even though a partnership does not pay income tax, it must file annually Form 1065, U.S. Return of Partnership Income, with the Internal Revenue Service....more info

LLC vs. Limited Liability Partnership (LLP)

A limited liability partnership (LLP) is similar to an LLC, except that LLPs are intended for use by attorneys, accountants, and other professionals. Partners in an LLP are not liable for liabilities of the partnership resulting from the negligence, malpractice, or misconduct of another partner, employee, or agent of the partnership. Thus, if a law firm is an LLP, if one lawyer commits malpractice, the partnership is liable for the damages but the other partners are not liable.

State laws vary, however, as to the extent of a partner's protection from personal liability for the partnership's obligations. In states where a limited liability partner's protection is not as extensive as the protection of a member of an LLC, a business should be organized as an LLC rather than an LLP....more info

LLC Information

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