•
Must have at least two members. An S corporation can have one shareholder.
Although some states allow single member Limited Liability Company (LLCs), the business is not
permitted to elect partnership classification for federal tax purposes.
The business files Schedule C as a sole proprietor unless it elects to
file as a corporation.
• Earnings are generally subject to
self-employment tax.
• State law may limit the life of the Limited Liability Company (LLC).
• As a partnership, if 50% or more of the
capital and profit interests are sold or exchanged within a 12-month
period, the Limited Liability Company (LLC) will terminate for federal tax purposes.
• If more than 35% of losses can be
allocated to nonmanagers, the Limited Liability Company (LLC) may lose its ability to use the cash
method of accounting.
• Limited Liability Company(s) (LLCs) cannot take advantage of incentive
stock options, engage in tax-free reorganizations, or issue Section 1244
stock.
• Lack of uniformity in Limited Liability Company (LLC)
statutes.
Businesses that operate in more than one state may not receive consistent
treatment.
• Some states do not tax partnerships;
but they do tax Limited Liability Company(s) (LLCs).
• Minority discounts for estate planning
purposes may be lower in an Limited Liability Company (LLC) than a corporation. Since
Limited Liability Company(s) (LLCs) are easier
to dissolve, there is greater access to the business assets. Limited Liability Company (LLC)
discounts
may only be 15% compared to 25% to 40% for a closely-held corporation.
• Conversion of an existing business to Limited Liability Company (LLC)
status could result in tax recognition on appreciated assets.
