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Frequently Asked Questions - Limited Liability Companies
The section below addresses many of the questions about forming a LLC, as well as the reasons for the ongoing shift to this popular form of legal structure.
What is a limited liability company?
How does an LLC maximize tax advantages?
Does an LLC provide shareholder flexibility?
Is an LLC widely accepted?
Why a Delaware LLC?
What is a limited liability company?
The Limited Liability Company (LLC) combines the best features of corporations and partnership: the corporate advantage of limited personal liability and the taxation advantage of partnerships. The LLC is now recognized in most states and is a highly flexible business entity.
How does an LLC maximize tax advantages?
With a "C" corp., owners are taxed twice. First on corporate profits and then on personal income when profits are distributed as dividends. The situation is somewhat improved with an "S" corporation, in that corporate profit can flow through personal income, thereby subjecting it only to single taxation. The problem with "S" corporations is that they are fairly restricted and therefore lack flexibility.
With an LLC, profits are taxed as they would be in a partnership, only once, at the personal level.
Is an LLC widely accepted?
Virtually every state has adopted them and many thousands have been formed so far.
Does an LLC provide shareholder flexibility?
In a "C" corporation anyone, or any number of entities may be shareholders. In an "S" corporation, there may be no more than 70 shareholders, and no foreign or corporate shareholders. In a partnership there must be at least one "general" partner, who has full liability and any number of "limited" partners, who have liability limited to their investment, but may also have no involvement with the management of the company. Even this degree of protection is not allowed in every state.
With a Limited Liability Company there may be any number of members and they may be foreign or they may be corporate.
Why a Delaware LLC?
The State of Delaware recognized and adopted Limited Liability Companies fairly early and has experience and a proven track record in adjudicating legal matters involving LLCs. A Delaware LLC combines the best advantages of a Delaware corporation and limited liability corporate status.
