Like corporations, LLCs provide their owners—called “members”—with a strong statutory liability-shield that protects their personal assets from claims against their business. Indeed, the LLC shield is arguably stronger than the corporate shield.
The default management structure of LLCs is much simpler than corporations. The management structure of single-member LLCs is essentially the same as a sole proprietorship. Although a corporate structure is available, most multi-member LLCs use a general or limited partnership management structure.
Like LLC law, the federal taxation of LLC and their members is characterized by extraordinary flexibility.
Single-member LLCs. Single-member LLCs are considered to be “disregarded entities” by default. Disregarded entities are ignored for federal tax purposes and their tax items are treated as those of their members. If the owner of a disregarded single-member LLC is an individual, all income of the LLC will be taxable to the owner as a sole proprietor under the default rules. If the owner of a disregarded entity is an entity, all income of the LLC is reported on the owner’s tax return. While the default rules are often the best choice for tax purposes, the LLC can elect to be taxed as a subchapter C corporation or, if all requirements are satisfied, as a subchapter S corporation.
Multi-member LLCs. By default, multi-member LLCs are taxed as partnerships under IRC Subchapter K. Subchapter K is often the best choice of tax regime for most businesses with multiple members, but multi-member LLCs can also elect to be taxed as C corporations or, if they meet applicable eligibility and election requirements, as S corporations.
For more information you can visit our LLC – FAQS page.