Description
Limited Liability Companies
Advantages
- Easier to organize than corporations
- May have unlimited number and type of
members
- Limited liability for all members
- Favorable pass through tax treatment
- Single member LLCs treated as
“disregarded entities” for federal taxes
- May allocate start-up losses to investors
- Tax free contributions of appreciated
property
- Liquidation of an LLC is generally a tax-
free event
Disadvantages
- To file as a partnership the LLC must
have more than one member; whereas
an S corporation may have only one
shareholder
- Members cannot be employees, rather
distributive income is subject to SE tax
- Some states may tax LLCs, while they
may not tax partnerships
- Businesses operating in more than one
state may receive inconsistent treatment
- Sale of 50% or more of interest may
terminate LLC for federal tax purposes
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