Members of an LLC are protected against the financial and legal obligations of the business. This means that your personal assets are not confiscated if the business goes bankrupt or is found financially responsible in a lawsuit. This is not the case for companies incorporated under the arrangement of sole proprietorships and partnerships.
The owners of an LLC are called members. They can be made up of individuals, foreign entities, companies, or other limited liability companies. One or an unlimited number of members can own an LLC. Another characteristic of an LLC is its flexibility to become a corporate business structure. This is considered when the LLC company designation is no longer appropriate due to its growth and/or the need to expand and have shareholders investing money. And vice versa, a corporation can become an LLC. The best LLC service will help you with all kinds of legal and financial formalities for your company.
One of the benefits of an LLC is its management flexibility as it can be created and managed as a partnership, where its members run the business as a corporation. Being run as a corporation, an LLC can elect a president, a board of directors, and observe a corporation’s formalities with a board and meetings of members. However, they may decide to leave the formalities that are required by regular corporations.
How an LLC is Taxed
If the LLC operates under a corporate structure, business profits are independent of members’ income and are taxed by the Internal Revenue Service’s corporate tax rates. However, when a corporation’s profits are shared with its shareholders, they are taxed again when reported on their individual tax returns. To avoid double taxation, an LLC can choose to pay taxes as a partnership, and the business profits are passed on to the members and taxed once on their individual tax returns.