Taxation of LLC

Limited Liability Company Versus Other Forms of Entities

Introduction

Selecting the correct entity form for a company is essential in developing a profitable enterprise . Many partners and investors in firms will utilize different formations in to receive the optimum benefit . The formation type called the Limited Liability Company is a fairly new idea that attempts to merge the benefits of a corporation with the benefits of a limited partnership . The combination of these two entities creates a very attractive model that many companies will consider when choosing the best option for

their investments . Another item that is important when deciding which type of corporate structure to pursue is identifying how the protections of the entity type can be overcome . This is important because if a business chooses a limited liability company because of the limited liability aspect of the practice , but a partner in the firm binds the company to increased risk then the limited liability protection can go away for that partner and the other partners . For example

Like a sole practitioner or general partner , each member of an LLC is liable for his or her own acts of negligence and /or civil and criminal violations . LLC statutes generally protect owners from personal liability for the ordinary business debts of the entity , though there are exceptions . Because laws change constantly it 's wise to monitor LLC statutes and related state legislation . For example , the Rhode Island General Assembly amended its workers ' compensation law to impose personal liability ' upon corporate officers , LLC managers and members and partners in general or limited partnerships for knowingly failing to provide workers ' compensation insurance (Miller Tucker , 2005 ,

. 71

This aspect of the LLC example demonstrates how a corporate structure may be the best for a given company , but it may still bind members unfavorably . This type of limited protection is called a partial shield ' and should be considered whenever a company selects an organization model (Miller Tucker , 2005 ,

. 71 ) The partial shield is just one of the events that a company should be aware of despite what benefits an LLC may provide . In spite of a partial shielding , the limited liability company offers many advantages over other types of organizational structures . A look into the advantages and disadvantages of other entities as compared to the LLC will be beneficial in assisting managers in their organization decision-making

Advantage /Disadvantage Overview

Many options exist for a group of investors to choose the organizational structure of a company . Four of the most utilized forms for a business are the general partnership , the limited liability company , the limited partnership , and the corporation . The general partnership can be started with a handshake , the limited liability company requires some type of filings (professionals use a form of LLC called a limited liability partnership , the limited partnership is similar to the general partnership in scope but requires a filing , and the final of the big four is the corporation which requires the most filings of any form (Williams...