The fairly new and popular LLC is known as a hybrid business structure that offers the tax benefits of a partnership, and limited liability of corporations. It has grown in popularity since it's start in Wyoming in 1977.
- Unless the company elects to be taxed like a corporation, they will automatically be taxed like a partnership.
- LLC's are created at the state level and subject to operate and be formed according to state laws.
- Like a corporation, LLC's are treated as a legal person that can sue or be sued.
- LLC's can enter into contracts.
- LLC's can be designated as Ltd., Limited, A Limited Liability Company and must be displayed after names of businesses operating as such.
- Texas allows for single member LLC's, but some states require at least two members to form an LLC.
- One member LLC's are automatically taxed as sole-proprietorship unless specific instructions are given to be taxed as a corporation.
ADVANTAGES
One of the most attractions of this business form is that unlike a corporation, the LLC will not pay taxes. Instead, members of the company pay taxes personally on earnings as money passes through the company.
Members also have the option to not pay the profits to the members, rather reinvest it into the company. In this case, taxation as a corporation is most beneficial because income tax rates for corporations are often lower than personal income tax rates.
This flexibility in regards to taxation is what makes this business form attractive to most business owners. This kind of arrangement makes it easy for entrepreneurs to protect their personal assets while operating a separate entity.
Members also have the option to not pay the profits to the members, rather reinvest it into the company. In this case, taxation as a corporation is most beneficial because income tax rates for corporations are often lower than personal income tax rates.
This flexibility in regards to taxation is what makes this business form attractive to most business owners. This kind of arrangement makes it easy for entrepreneurs to protect their personal assets while operating a separate entity.
