Limited Liability Company (LLC)
A limited liability company (LLC) is a hybrid of a partnership and a corporation. An LLC can be treated like a corporation for liability purposes and can be taxed as a partnership (or even a sole proprietorship). When taxed as a partnership, income, losses, and other tax attributes pass through to the owners either pro rata or as allocated in the operating agreement (also referred to as a limited liability company agreement or a member control agreement, in which you prescribe, among other things, how the LLC is to operate and the relationship between members). Such an allocation of tax attributes is referred to as each member's distributive share. The following discussion assumes that the LLC is taxed as a partnership.
- May be relatively simple and inexpensive to create and operate
- No limit on the number and type of members
- Profits taxed only once
- Members can deduct losses and have them "specially allocated"
- LLC can have centralized management
- A member's "basis" is increased by LLC liabilities
- Members can "assign" their interests
- LLC is flexible in sharing profits and control
- Members can generally contribute appreciated property tax free
- Liquidation of an LLC is generally tax free to members
- Members can typically "bind" the LLC
- Life of LLC may be limited
- LLC may be treated differently state to state
- Members typically have the right to withdraw from the LLC
- Fringe benefits are taxable to member-employee
Variations from State to State
- Because they are relatively new, LLCs may not be treated as uniformly as, perhaps, a partnership or corporation
How Difficult Is It to Implement?
- An LLC may be relatively simple and inexpensive to form and maintain
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