Discussion Topic 3 19 Prior to 1995 the only way to get the benefits of limited
ID: 330913 • Letter: D
Question
Discussion Topic 3 19 Prior to 1995 the only way to get the benefits of limited liability like a corporation while getting the flow through taxation benefits of a partnership was to use an S Corp structure. At that time the maximum number of shareholders allowed to be in a given S corp was 35, making it generally only available to smaller entities, although there were some exceptions. With the emergence of LLC's the number of "partners" is unlimited. Discuss the equity (fairness) of allowing the LLC form of business to have the protections of a corporation with the partnership tax benefits. What does it mean to business formations? Owners? Other Taxpayers? and Competing entities?Explanation / Answer
A limited liability (LLC) is the United States specific form of a private limited company..it is a business structure that combines the pass through taxation of a patnership or a sole proprietorship with the limited liability of a cooperation . An LLC is not a corporation in and of itself. It is a legal form of a company that provides limited liability to its owners in many jurisdictions. LLC are well known for the flexibility that they provide to buisness owners depending on the situation, an LLC may elect to use corporate tax rules instead of being treated as a partnership and under certain circumstances, LLC maybe organised as non- for-profit.. The primary characteristics an LLC ishares with a corporation is limited liability and the primary characteristics it shares with a partnership is the availability of pass through income taxation. It is often more flexible than a corporation and it is well suited for companies with a single owner. LLC affords greter protection for the asset of the member as compared to operating as an unincorporated entity. For U S federal income tax purposes an LLC is treated by default as a pass through entity. If there's only one member in the company the LLC is treated as a disregarded entity for tax purposes, an individual owner would report the LLC income or loss on schedule c of his or her individual tax return . Thus income from the LLC is taxed at the individual tax rates. The default tax status for LLC with multiple members is as a partnership which is required to report . As an s-corporation (entity level income and loss passes through to the members). Some commentators have recommended an LLC taxed Asaph s-corporation as the the best possible small business structure. It combines the simplicity and flexibility of an LLC with the tax benefits of an s-corporation (self employed tax savings). In LLC much less administrative paperwork and record keeping than a corporation.