LLC Questions & Answers

Common Questions:

• Is it better to choose an S-corporation or an LLC?
• Can I be a one member LLC?
• How are LLCs Taxed?
• Can any type of business be an LLC?
•  I’ve already purchased property. How do I get it into my LLC?
• How do I form an LLC?

Q: Is it better to choose an S-corporation or an LLC?

A: This is the question we get asked on a daily basis and one that should not be taken lightly. Both an LLC and S-corporation offer many advantages in the way of liability protection for their owners, but they also differ greatly in ownership, management and taxing issues.

Ownership:

S-corporations are owned by shareholders, while LLCs are owned by members. LLCs have greater flexibility of management and ownership than an S-corporation. With an LLC, anybody or even another entity can be a member. With an S-corporation you are limited to 100 shareholders, they all must be a natural person, not another business entity, and they cannot be a foreign citizen.

Liability Protection:

LLCs and S-corporations are similar in the level of liability protection afforded the owners. 

Distribution of Profits and Loss:

With an LLC you have flexibility in regard to the distribution of profits and losses, unlike an S-corporation where profits and losses are passed to the individual shareholders based on the number of shares they have in the company.

Example: Let’s say Susan invests $35,000 into the LLC and Jack only invests $8,000 but does most of the leg work to keep the company going. Because of the split of work vs. investment, Susan and Jack decide that the profits and losses will be distributed 60% vs. 40%. With the LLC they are not limited to just membership interest in determining how the profits and losses will be distributed.

Taxing Issues:

Both the LLC and the S-corporation are taxed as pass-through entities, which means profits and losses pass through to the owners on their personal income tax return.

As a member of an LLC, both salaries and profits are subject to self-employment tax which is usually around 15.3%. With an S-corporation, only the salaries are subject to self-employment tax. 

Q: Can I be a one member LLC?

A: You can be a one member LLC. The biggest disadvantage is you lose the “charging order” protection if you are sued personally, but your personal assets are still protected if your business is sued. So don’t panic and rush out and make your disliked son-in-law a member of your LLC just yet. Remember anybody can be a member of an LLC, including another entity, so you might want to look at forming another LLC or corporation to become the second member.

Q: How are LLCs taxed?

A: LLCs can be taxed as either a pass-through entity, a partnership or at the corporate level. If you’re a one-member LLC, then you’re considered a “disregarded entity” in the eyes of the IRS and are taxed as a sole proprietorship. This only means that the income and loss is passed directly onto the individual 1040. It does not disregard the liability protection that the LLC offers. If the LLC has multiple members, then it is taxed as a partnership. If the LLC prefers to be taxed as a corporation, you need to file Form 8832 with the Internal Revenue Service.

Q: Can any type of business be an LLC?

A: In general banks, insurance companies and nonprofit organizations cannot be LLCs. You should check your individual state requirements and the federal tax regulations for further information.

Q: I’ve already purchased property, how do I get it into my LLC?

A: In most scenarios you can quick claim the property to the LLC. If you are holding a mortgage on the property, you will probably have to get permission from the lending company.

Q:  How do I form an LLC?

A: If you want to form your LLC on-line, it will take about 10 minutes as you go through the simple order process. Or you can call 1-888-273-8152 and talk directly with one of our helpful business consultants. A few things you need to decide are “What is the name?” and “Who will be the members?” of your new Limited Liability Company.

Making a Decision:

Before making a decision, you should take the time to talk with one of our business professionals, your CPA or Tax Attorney. Simply call 1-888-273-8152 today and receive a complimentary consultation.

This information is for general purposes only. All that we do is submitted and performed with the understanding that we are not engaged in rendering legal, accounting or other such professional service.  If legal advice or other expert assistance is required, the services of a professional should be sought.