Owners of an LLC are called members or partners. Members may be individuals, corporations, and other LLC (domestic or foreign). LLCs can have an unlimited number of members or partners.
Single vs. Partnership LLC
An LLC with more than one individual or entity is called a Partnership LLC. An LLC with one owner is called a Single Member LLC. a Single Member LLC is taxed as a sole while a Multiple-Member LLC by default is taxed as a partnership.
Advantages of Forming LLC
LLCs allow for pass-through taxation, and that advantage is one of the biggest reasons for the recent popularity of the LLCs. Pass-through taxation means that earnings of an LLC are taxed only once, basically being treated like the earnings from a partnership, a sole proprietorship or an S-Corporation. While neither partnerships nor sole proprietorships also offer limited liability protection, an S-Corporation comes the closest to an LLC. However, an S-Corporation is a much more restrictive business structure that is harder to maintain.
Personal Liability Protection
An LLC is an entity separate from its owners. Being a legally distinct entity, the personal assets of each owner (such as a home, a car or a personal bank account) are not reachable by business creditors. An LLC member's liability is generally limited to the amount of money that a person has invested in the LLC. Thus, LLC members are offered the same limited liability protection as the shareholders in a corporation.
Ease of Transfer
With an LLC it is easy to sell the ownership interests to third parties without disrupting the continued operation of the business. As a comparison, selling interests in a sole proprietorship or general partnership requires much more time and effort. An owner must individually transfer assets, business licenses, bank accounts, permits, and other legal documentation. Ownership transfers in S-Corporations are also burdened with many restrictions.
No Ownership Restrictions
LLCs have no restriction on the number or types of owners. By comparison, S-Corporations cannot have more than 100 stockholders, and each must be a resident or a citizen of the United States. None of these restrictions apply to an LLC.
Easier to Raise Capital
LLCs allow for many ways to raise capital. An LLC can admit new members by selling membership interests or even create a new class of members with different voting or profit-sharing characteristics.
As a registered LLC, a business will enjoy legitimacy and greater credibility when dealing with other companies, banks, and potential partners or investors than would, for example, a sole proprietor. An LLC is recognized as a legitimate company and not as an individual engaging in business.
Flexible Management and Ownership Structure
Like general partnerships, LLCs are free to establish any organizational structure agreed upon by the members. Thus, profit interests may be separated from voting interests. This offers the owners the ultimate flexibility to separate or combine the interests of the investors into the company and of the people actually running the day-to-day operations.
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