What is a Limited Liability Company (LLC)?

What is the proper definition of a "disregarded entity"?

The Limited Liability Company or LLC has been a traditional form of business structure in Europe and Latin America. The LLC was first introduced in the United States by the State of Wyoming in 1977 and authorized for pass-through taxation (similar to partnerships and "S" Corporations) by the IRS in 1988. With the recent inclusion of Hawaii, all 50 states and Washington, D.C. have now adopted some form of LLC legislation for both domestic and foreign (out of state) Limited Liability Companies. 

Many business professionals believe the Limited Liability Company presents a superior alternative to corporations and partnerships because the LLC combines many of the advantages of both. With an LLC, the owners can have the corporate liability protection for their personal assets from business debt as well as the tax advantages of partnerships or "S" Corporations. It is similar to an "S" Corporation without the IRS' restrictions.

LLC - Limited Liability Company - must contain the words

  • Limited Liability Company
  • LLC
  • L.L.C. 

Advantages

  • Protection of personal assets from business debt
  • Profits/losses pass through to personal income tax returns of the owners
  • Great flexibility in management and organization of the business
  • The LLC does not have the ownership restrictions of an "S" Corporation making them ideal business structures for foreign investors
  • If you are the only member of an Limited Liability Company, you can elect to file a "Schedule C" as part of your personal tax return

Disadvantages

  • The LLC often has a limited life (not to exceed 30 years in many states). Some states require at least 2 members to form an LLC, and LLCs are not corporations and therefore do not have stock and the benefits of stock ownership and sales. However, Delaware only requires the LLC to have one member
As with the "S" Corporation listing, these lists are not inclusive. For more detailed information, please be sure to speak with a qualified legal and/or financial advisor. You may address your questions to our Tax and Accounting Services at tax@delawarecorp.net

Filing Taxes with the IRS as an LLC (quoted from www.irs.gov)

    The IRS status of your LLC depends on the minimum number of members in the company. 

If you are a Single-Member Limited Liability Company (LLC) you will initially be classified as a disregarded entity for the purposes of filing a federal tax return and have to report your taxes on a Schedule C  and not be allowed to file a partnership return.

If you do not wish to accept the default classification of disregarded entity, you can:

  • File Form 8832 (Entity Classification Election) to elect corporate status, or
  • File Form 2553 (Election by a Small Business Corporation) to elect S corporation status.

Differences between Corporations and LLC. 
For more detailed information, please be sure to speak with a qualified legal and/or financial advisor. You may address your questions to our Tax and Accounting Services at tax@delawarecorp.net

What is the maintenance on my Corporation or LLC?

Delaware Series LLC

Best practices would dictate that every distinct business or major business asset be segregated into a different limited liability entity. In an ideal situation, someone with 25 rental properties would have 25 separate LLCs, one for each property. However, this isnít always practical because of administrative costs and government fees that must be paid for each LLC. What can such a business owner do to protect his assets from liabilities unrelated to those assets in a cost-effective way?

For a detailed explanation of the Delaware Series LLC  

Important Note Regarding the Federal Taxation of the LLC

Before January 1, 1997, the Internal Revenue Service determined whether a limited liability company would be taxed "like a partnership" or "like a corporation" by analyzing its legal structure or by requiring the members to elect the tax status on a special form. Effective January 1, 1997, the IRS has simplified this process. 

Pursuant to these new IRS regulations, if a limited liability company has satisfied IRS
requirements, it can be treated as a partnership for federal tax purposes. As such, the LLC is required to file the same federal tax forms as partnerships and take advantage of the same benefits. However, this is still a highly technical area, and if you require further information, it is recommended that you communicate with the Internal Revenue Service or consult a competent professional such as a tax accountant or attorney.

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