What are the advantages of having a limited liability company (LLC)?

The limited liability company or LLC has become the predominant legal entity in the United States, particularly among private enterprises.  

It provides the most flexibility of any legal entity today.  It provides limited liability and a choice of tax treatment as either a corporation or a partnership.  

A corporation provides limited liability but is taxed as a separate entity, so shareholders are taxed on corporate income and then once that income is distributed they are taxed again on their personal income.  An S-corporation allows for pass-through tax treatment like a partnership, but an S-corporation has restrictions on ownership that LLCs do not have.

An S-corp can only have up to 100 shareholders.  An LLC can have unlimited shareholders.

An S-corp cannot be owned by other business entities, whereas an LLC can.

An S-corp cannot have nonresident alien shareholders.  An LLC can be owned entirely by nonresident members, making the LLC the preferred business entity for foreign investment in the United States today.

An LLC is also much easier to govern than a corporation.  A corporation is governed by directors and officers, who are usually elected by the shareholders.  There are annual meeting requirements and other formalities.  An LLC’s governance can be spread out among the members or concentrated in a single manager, who does not have to be a member, and anything in between.  Meeting requirements, voting powers, and distribution rights are internal and contractually agreed in an operating agreement.  

Overall, an LLC is a more flexible and versatile business entity for doing business in the United States.


Posted in: Uncategorized.
Last Modified: May 4, 2016