Do I Need an LLC (limited liability company)
Slowly becoming more as a standard for businesses, a Limited Liability Company (or LLC) is a hybrid business form which combines the liability protection of a corporation with the tax treatment and ease of administration of a partnership.
The LLC is America’s newest form of business organization and is the most popular form of business.
The "owners" of an LLC are referred to as "members." Depending on the state, the members can consist of a single person, two or more people, corporations or other LLCs.
Unlike shareholders in a corporation, LLCs are not taxed as a separate business entity. Instead, all profits and losses are "passed through" the business to each member of the LLC. LLC members report profits and losses on their personal federal tax returns, just like the owners of a partnership would.
In other words, in the eyes of the government, an LLC is not a separate tax entity, so the business itself is not taxed. Instead, all federal income taxes are passed on to the LLC's members and are paid through their personal income tax. While the federal government does not tax income on an LLC, some states do, so make sure to check with your state's income tax agency.
Since the federal government does not recognize LLC as a business entity for taxation purposes, all LLCs must file as a corporation, partnership, or sole proprietorship tax return.
LLCs that are not automatically classified as a corporation can choose their business entity classification. To elect a classification, an LLC must file Form 8832. This form is also used if an LLC wishes to change its classification status.
Disadvantages of Limited Liability Company (LLC)
More expensive to form than sole proprietorships and general partnerships.
Ownership is typically harder to transfer than with a corporation.
Limited Life - In many states, when a member leaves an LLC, the business is dissolved and the members must fulfill all remaining legal and business obligations to close the business. The remaining members can decide if they want to start a new LLC or part ways. However, you can include provisions in your operating agreement to prolong the life of the LLC if a member decides to leave the business.
Also, because the LLC is a newer business type, there is not as much case law to rely on for determining precedent.
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