Today, many businesses are forming as a Limited Liability Company (LLC) and are finding that an LLC offers the “best of both worlds” of corporate forms. LLC formation allows for pass-through taxation (see “Tax Advantage” below), thereby avoiding the “double tax” of a C-Corporation, yet also affords its owners the personal liability protection of a corporation.
The popularity of the LLC is primarily based on the Tax Advantage. An LLC operates in most ways as a corporation, yet the distributions to its “economic interest owners” (like corporate shareholders) are not subject to taxation at the corporate level. Instead, the profits are “passed through” and are taxed only at the individual level. Therefore, the LLC avoids “double taxation.”
Personal Liability Protection
Corporations and LLCs are separate entities from their owners. Since the two are separate, the personal assets of the owners (such as their personal residences, and personal bank accounts) cannot be reached by business creditors provided appropriate formality requirements are maintained.
LLC or S-Corporation election?
As mentioned above, a Corporation that satisfies certain requirements can choose to be treated as an S-Corporation for tax purposes. The primary benefit of an S-Corporation is that it allows the shareholders to receive profits without taxation at the corporate level. Instead, the profits will only be taxed at the individual level, thereby avoiding the “double tax” that shareholders are usually subject to.
LLC can be taxed as an S-Corporation
It is now possible to have an LLC as your entity, but have that entity taxed as an S-Corporation. The LLC owners can essentially choose to be taxed as a Partnership or an S-Corporation
If you need legal help and advice and would like the advantage of having a go-to Raleigh LLC Formation Lawyer who is highly accessible and easily approachable while offering reasonable fees, please call 919-845-5000 or contact our firm for an initial consultation. North Raleigh Law is located in Raleigh, North Carolina, and serves clients throughout the Triangle Area in Wake County, Durham County, Orange County, Chatham County, Vance County and Franklin County, including Raleigh, Durham, Chapel Hill, Zebulon, Wake Forest, Fuquay, Cary, Clayton, Henderson, Oxford, Pittsboro, Apex and Holly Springs.