Does Your Limited Liability Company (LLC) Really Decrease Your Liability?
…THE LIMITED LIABILITY COMPANY…
Once you have decided to purchase a business and identified your target, the question arises as to what type of entity should be utilized for buying and operating the business. The choices are: sole proprietor (NEVER A GOOD IDEA!), partnership, corporation, S corporation, or a limited liability company (LLC).
In most US states a limited liability company is easy to form and does not require annual reporting to the corporation commission. An individual(s) is either a member or a managing member. The IRS defaults to a tax payer status of sole proprietor for a single member LLC, or to a partnership status for an LLC with more than one member other than a spouse. An LLC can make a request to the IRS to file as an S corporation or a regular corporation.
Many small businesses are operated as sole proprietors or LLCs that are taxed as sole proprietor and filed on the individuals tax return schedule C. The liability protection from operating as an entity rather than as a sole proprietor may be decreased in this situation. It is far better to request filing as either an S corporation or a regular corporation. Not only do you increase your liability protection, but you may gain some significant tax advantages as well. Please consult your CPA and tax attorney for information in your state of residence.
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