Question

What are the advantages of a form being formed as a limited liability company (LLC) instead of a limited partnership? Any disadvantages? Three individuals recently created a LLC, with equal interest. One will be working in the business as manager and will receive a salary of $60,000; all will have substantial income from other sources. The LLC expects to be profitable and will earn approximately $30,000 of ordinary income and $30,000 or long-term capital gain. What tax issues should the members consider regarding the LLC's initial year of operations?

Answer 1

The advantages of Limited Liability Company is as following:

1. The liability of the owners of the company is limited.
2. The company has a separate legal identity different from its owners.
3. The company will have its own assets and liabilities and will be able to file cases against any person and others will also be able to file cases specifically against the company rather than against its owners.
4. Limited Liability Company will have numerous options to raise required amount of funds for business such as issue of ordinary shares to the public, taking loan from banks and financial institutions and others.
5. The management of the company will be separate from the ownership of the company.

The disadvantages are as following:

1. The only disadvantage is that the owners will not be able to exercise significant control over the day to day affairs of the company and
2. The lengthy process of law to register an organization as a limited liability company.

The tax implications:

The Limited Liability Company will be liable to pay taxes on its assessable profit from business. The company will have to pay tax at the prescribed rate on the amount of profit earned by the company from its business operations. The taxable profit will be calculated in accordance with the provision of IRS.