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Understanding LLCs

Entrepreneurs in Illinois and Michigan must choose how they would like new ventures to be managed and how they prefer their businesses to be taxed. A company may be established as a sole proprietorship, a partnership, a corporation or a limited liability company. Each framework has its own sets of pros and cons, so people should review each one carefully.

As explained by Forbes, a limited liability company really is a business structure unlike an S corporation which is essentially just a choice in how a company is taxed. In fact, an LLC can choose to be taxed as an S corporation. Companies that provide professional services may not be able to take advantage of the new corporate tax rate reduction and may find that an LLC works well for them.

Many people appreciate the flexibility in management options that an LLC provides compared to a traditional C corporation. Also a benefit for some is that an LLC tends to be less onerous to start than a corporation according to NerdWallet.

There are some things that people should evaluate carefully before making the choice to establish an LLC. One of these is the fact that the LLC likely needs to be dissolved with a new entity created if one of the owners leaves the business for any reason, including death. Owners of an LLC, called members, also often have to pay self-employment tax since taxes are transferred to members' personal tax returns versus having the company file a business return and pay taxes that way.

 

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