In General: Like a corporation, an LLC is a separate and distinct legal entity. This means that an LLC can obtain a tax identification number, open a bank account and do business, all under its own name. The existence of an LLC begins upon the filing of the Articles of Organization with the Secretary of State. The articles must be on the form prescribed by the Secretary of State.
Limited Liability: In an LLC, its owners, known as members, are not personally liable for the debts and liabilities of the LLC. For example, if an LLC loses a big lawsuit and is forced into bankruptcy, the members will not be required to make up the difference with their own money.
Taxes: An LLC can be taxed either as a "pass-through" entity like a partnership, or sole-proprietorship, or as a corporation. If an LLC chooses to be taxed as a pass-through entity (and most do), the owners of the LLC are not subject to double taxation. This is as opposed to a regular C-Corporation, which pays a corporate tax on its net income (the first tax) and then a second tax when the corporation distributes profits, as the stockholders pay income tax on dividends.
Self-Employment/Social Security Taxes: In an LLC, Social Security and Medicare taxes of approximately 15% are levied on profits to its active members. This can be a significant tax and thus the LLC may be considered too expensive tax wise as compared to other entity choices.
Separate Legal Entity: Like limited partnerships and corporations, an LLC is recognized as a separate legal entity from its "members."
Management and Control: Management and control of an LLC is vested with its members unless the articles of organization provide otherwise.
Profit Allocation: An LLC may specially allocate profits or losses in a different ratio than the members’ interest in profits, unless the articles of organization or operating agreement provide otherwise. This may be a big tax advantage to LLC’s where members contribute different amounts.
Operating Agreement: To validly complete the formation of the LLC, members must enter into an Operating Agreement. This Operating Agreement may come into existence either before or after the filing of the Articles of Organization.
Annual Tax Filings: An LLC files its own annual tax forms each year depending on how the LLC is treated for tax purposes. Typically the LLC may file IRS forms 1065, 1120, 1120S, or Schedule C. Requisite State forms may also be required.
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