LLC ADVANTAGES OVER A C-CORPORATION
An LLC enjoys many of the same advantages of a “C” corporation (a standard business corporation so called because it is taxed under subsection C of the Internal Revenue Code), as well as retaining many of the characteristics of unincorporated entities such as partnerships and sole proprietorships. Like a “C” corporation, the LLC offers its members limited liability (a member is generally only liable up to the amount contributed to the LLC), and like a partnership, the LLC’s earnings are not subject to an entity level of tax (only one level of tax imposes directly to the member), whereas, a “C” corporation imposes a double level of tax (entity level and shareholder level) on distributable income.
Generally the LLC entity form should always be used over the “C” corporation form, unless the entity is anticipating an initial public offering.
Like the shareholders of a “C” corporation, the owners/members of an LLC are generally not liable for the debts of the business beyond the extent of their investment. The owners can operate the business with the security of knowing that their personal assets are protected from the entity's creditors. There are exceptions, such as an instance when an individual member personally guarantees the debts or liabilities incurred by the LLC.
Unlike a “C” corporation, an LLC is treated as a partnership for federal income tax purposes. This can provide a number of important benefits to the owners. Partnership earnings are not subject to an entity-level federal income tax; instead, they “flow-through” to the owners, in proportion to the owners' respective interests in profits, and are reported on the owners' individual tax returns (one level of tax). Thus, earnings of an LLC are taxed only once.
