by LawInc Staff
February 17, 2016
LLC advantages should be considered by all startups and real estate investors. Some of the main LLC advantages include the following:
The primary advantage of an LLC is limiting the liability of its members. Unless (1) a member personally guarantees a debt; (2) the LLC fails to have a separate bank account and personal funds are commingled with LLC funds; (3) the LLC is undercapitalized; or (4) the LLC fails to pay state taxes or otherwise violates state law, the members are not liable for the debts and obligations of the limited liability company. In a partnership or sole proprietorship, creditors may seize personal assets of the participants to pay debts of the business.
No LLC Ownership Restrictions
S corporations may not have more than 100 shareholders, and each shareholder must be a natural person who is a resident or a US citizen. An LLC has no such restrictions.
LLC Membership Interests May be Placed in a Living Trust
LLC Members may place their membership interests in a living trust. It is difficult to place shares of an S-corporation into a living trust. This makes LLCs particularly attractive for those wishing to pass down business ownership to their children.
Ability to Deduct Losses
Members who actively participate in the business of an LLC are able to deduct its operating losses against the member’s regular income to the extent permitted by law. S corporation shareholders may also deduct operating losses; however C corporation shareholders may not.
LLC Tax Flexibility
LLCs, by default, are treated as “pass-through” entities for tax purposes, much like a sole proprietorship or partnership. This means that LLCs avoid double taxation. Alternatively, an LLC may elect to be treated like a corporation for tax purposes, whether as a C corporation or an S corporation.
Flexible LLC Management Structure and Ownership is Permitted
The members have greater flexibility in structuring the limited liability company than is ordinarily the case with a corporation, including the ability to divide ownership and voting rights in unconventional ways while still enjoying the benefits of pass-through taxation.
Fewer LLC Formalities
Corporations are required to keep formal minutes, have meetings, and record resolutions. The LLC business structure requires no corporate minutes or resolutions and is easier to operate.