The Limited Liability Companies (LLC’s) are now one of the most popular choices for incorporations over the sub-Chapter S Corporations.
Features of an LLC
Benefits of LLC’s over S Corporations 1. Lower Annual State Filing taxes:
- This type of entity is a form of business ownership that has several attributes of corporation and partnership structures.
- An LLC is neither a corporation nor a partnership.
- An LLC may be called a limited liability corporation, but the correct accepted terminology is Limited Liability Company.
- The LLC’s owners are generally referred to as members not partners or shareholders.
- The number of members of an LLC is unlimited and may be individuals, corporations, or other LLC.
First of all the Corporations have higher minimum taxes in most states (except in California where the minimum taxes are the same $800.00). In New Jersey, for example up to 2 member LLC does not require annual filing tax. However, with 3 or members the tax is $150 per member. 2. Simple to Dissolve:
The LLC’s in many states including most of the North East States are easy to dissolve without much effort. For example in New Jersey it costs only $100 to dissolve whereas the Corporation requires a lot more 3. No Minutes or Corporate Resolutions required:
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. 4. Flexible Profit Distribution:
Limited liability companies can select varying forms of distribution of profits. Unlike a common partnership where the split is 50-50, LLC have much more flexibility. 5. Allocation of profit or loss not dependent on % of shareholder ownership
For S corporations, the distribution of the net distributable profit follows a rigid method based on the percentage of ownership. However, the LLC’s net distributable share of the profit or loss is not dictated by the percentage of ownership. Note: However, I would advise to consult a professional CPA to determine whether your unique circumstances and the applicable state laws for LLC’s merit the above benefits.