Beware, however, that IRS rules about special allocation of profits may require profit sharing to reflect ownership percentages or legitimate economic need or circumstance-and not be some attempt to avoid paying taxes. Corporations issue dividends on stock according to the number of shares owned, and partnerships normally split profits among partners, but an LLC can elect how its profits are shared, not shared or otherwise distributed. ![]() One advantage a multi-member LLC has is the ability for members to decide how to share profits. The LLC moniker at the end of a company’s name can also lend credibility to a small business. When you form an LLC, you gain the exclusive right to use your name as a business entity name in your state, and you also create a public record of your use of the name. State law usually doesn’t allow you to form a new business with the same name as an existing one. Instead, an LLC’s members may organize how they like: Members or managers may manage the business’s operations as they see fit. LLCs are not required to have annual shareholder meetings or maintain a board of directors, nor are they bound by the administrative requirements often seen with corporations. taxation–they must meet IRS requirements. An S corp is a pass-through entity–it doesn’t pay corporate tax but each owner pays personal income tax on their share of the company’s profits. A C-corp pays corporate tax and its owners pay tax on distributions they receive. Corporate taxation allows LLC owners to be paid as company employees, participate in company benefit programs and potentially save on taxes. If the entity wishes not to be taxed as a sole-proprietorship or partnership, the LLC can also elect to be taxed as an S-corp or C-corp. Members who work in the business are considered self-employed and also must pay self-employment (Medicare and Social Security) taxes on their share of the profits. Members report their share of business income and expenses on their personal tax return and pay personal income tax on profits. LLCs are automatically taxed as either a sole proprietorship or partnership, depending on whether there’s one member or multiple members. LLCs also provide more flexibility than other business types as to how taxation functions. Businesses as well as individuals can be members of an LLC. An LLC can have one owner (known as a “member”) or many members. Owners’ personal assets can be protected from business debts and lawsuits against the business when an owner uses an LLC to do business. The main advantage to an LLC is in the name: limited liability protection. Other common forms of businesses, including corporations, general partnerships and sole proprietorships, offer various benefits, but the LLC entity combines the advantages of each structure. ![]() LLCs provide the same legal and financial protections corporations do but can be simpler to operate. legal entity used to own, operate and protect a business. A limited liability company, or LLC, is a U.S.
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