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What Makes a LLC
Liability Company has similar protections for the owners as a
corporation. Limited Liability Companies have the advantages of a
partnership when it comes to its organization and control. It can have
multi-levels of membership interest, and control and equity benefits
limited by the parties (and their attorney's) imagination. The LLC has
the extreme flexibility of a partnership, yet can be established in a
traditional manner similar to a corporation.
Liability Companies have the following main advantages:
liability is similar to a corporation but is not a perfect protection
as many new business owners want to believe.
Companies are generally pass-through entities for tax purposes. That
means that a Single Member Limited Liability Company is treated as a
Schedule C sole proprietorship for tax purposes. A multi-member Limited
Liability Company is treated as a Partnership for tax purposes. (It
should be noted that a Limited Liability Company can elect to have tax
treatment as a corporation if it so chooses.)
3. Permanency. A Limited
Liability Company has the permanency of a corporation's perpetual
existence if the members so elect. This means that it does not
terminate on the death or disability of the member (contrasting to the
sole proprietorship which would terminate on the death or disability of
the proprietor.) Note that for tax purposes, this would be considered a
4. Transferability The
Liability Company, as an entity, can admit new members and modify the
membership and investment structure. This is an exceptionally useful
feature for closely held businesses when transferring the business
between family members of different generations.
5. Employment Taxes The Limited
Liability Company is liable for employment taxes, both the trust fund
portion and the employer portion. If the LLC terminates business owing
employment taxes, the members and officers would only be responsible
for the trust fund portion and not the employer's portion.
6. Cost The cost of
establishing a Limited Liability Company is similar to that
of a corporation with a Buy/Sell Agreement or a partnership. The
accounting and legal costs are very similar.
J. Cappuccio, J.D.,
Chapel Avenue West, Suite 128
Hill, NJ 08002 USA
J. Cappuccio, J.D., LL.M.(Tax)