What is an LLC?
An LLC is a relatively new business structure allowed by state statute, it is essentially a partnership that enjoys limited liability similar to a corporation. Members in an LLC may include individuals, corporations, other LLCs and foreign entities. LLCs are easier to maintain than corporations because there is no requirement that decisions be authorized by a formal vote of a "board of directors" or that such authorizations be documented in a "minute book". The members of an LLC generally enjoy the same type of limited liability protection that is enjoyed by stockholders of a corporation. Unlike a corporation, LLCs have no requirement for a board of directors, bylaws, minute book, and may have unlimited members. LLCs provide more protection against potential liability than does a corporation, primarily because there are fewer "corporate formalities" to comply with an LLC.
An LLC can be a 'single member LLC' or a 'multi-member LLC'. By default, the IRS treats a single member LLC as a "disregarded entity" this means that the LLC does not file its own tax return and all tax reporting is done on the members' individual tax return. Conversely, the IRS treats multi-member LLCs as partnerships , this means that the LLC must file a partnership informational return (IRS Form 1065) but no taxes are paid directly by the LLC .
For the most part, LLCs are governed by Chapter 605 of the Florida Statutes, it is a separate legal entity that can shield its owner from some of the liabilities that might arise out of the operation of the LLCs business. Both a single member and multi-member LLC can elect to be taxed as a corporation. After making the election by using IRS Form 8832 the IRS will treat the ownership interests of the LLC members as if they were stock holdings of the corporation.
After the LLC elects to be taxed as a corporation the IRS will automatically tax the LLC under Subchapter C, also known as a "C-Corporation" or a "C-Corp." A "C-Corp"is subject to "double taxation" this means that it is taxed once at the corporate level and if corporate income is distributed to the business owners as dividends it is taxed again as personal income. Conversely, the LLC may make a further election to be taxed under Subchapter S, also known as an 'S-Corporation" or an "S-Corp." An "S-Corp" is known as a "pass-through" entity, this means that no income tax is paid at the corporate level. Instead the profits and losses of the corporation "pass-through" the corporation and are reported on the owners' personal tax returns. Keep in mind restriction vary depending on whether the LLC elects to be taxed as a "C-Corp" or an "S-Corp." If you are considering forming an LLC consult with an attorney to determine which election will best suit your needs.