What is an LLC company type? The acronym stands for Limited Liability Company. The LLC combines the tax advantages of a partnership with the liability protection advantages of a corporation. The LLC company type has become an extremely popular entity choice for new businesses since its creation in the 1990s.
Advantages of an LLC company type
- All members receive liability protection
- Flexibility of structure and income distributions
- Ideal for holding real estate
Preferred returns are allowed. Since there are no ownership limitations, any type of entity may be a member. All members are allowed to participate in the management of the company without jeopardizing limited liability status. Property can be contributed into or distributed out of the LLC company type without causing a taxable event (of course there are some limited exceptions). Not all entity types allow this. For example, C Corporations are unfriendly to real estate transactions.
(Related: Leadership Development: 5 Leadership Mistakes)
Disadvantages of an LLC Limited liability company type
- Depending on your state, taxes, and fees can be high in California it varies between $0 – $11,790 year depending on your gross receipts. Fees in other states vary. This can be compared to fees for other entity types such as the annual franchise fee for S Corporations.
- Some types of businesses are not allowed to operating in an LLC structure.
- Taxation of fringe benefits for owners varies
Because of its flexibility, the LLC is a very popular entity choice, however, it may not be right for every circumstance. Be sure to discuss your options with your professional advisor before making a final decision. Feel free to email me if you have any questions about whether an LLC is right for you. Is your company an LLC? What are the biggest benefits for you?
By David Olson, CPA, Manager at WHH
David specializes in entity structures, entity reorganizations, and IC-Disc. His experience working with businesses that have multiple entities and complex ownership structures gives him expertise in understanding the taxation and planning that must be considered.
