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| Limited Liability Companys (LLC)
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LLCs combine the limited liability feature of
corporations with most of the characteristics
and advantages of partnerships. The LLC is
allowed to have partnership tax classification
when there are at least two members. This
makes it a pass thru entity for tax purposes.
Partnership tax classification is a better arrangement
than the pass thru tax status of S
corporations (due to the LLCs ability to allocate
income, deductions and losses to the owners
in any proportion).
Unlike the S corporation,
any person or legal entity can own its
shares (called units), there can be any number
of shareholders (called members), all members
can vote (unlike limited partners) and there is
limited liability for everyone connected with
the LLC (unlike partnerships).
LLCs can have
deductible employee pension plans for both
owners and non-owner employees. But many
other employee benefits, when given to the
owners of the LLC, are not deductible to the
LLC. LLCs do not have the capital gains tax
problem which corporations do. LLCs do require
annual reporting to the state where they
are created.
This is an excellent entity choice
for a very wide variety of small business situations,
and should be given serious consideration.
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