Business Services: Limited Liability Entities

As with everything, there are trends in the law. Limited liability companies (LLCs) are more popular than corporations these days. There are differences between them. A few of the differences are listed below.

Unless it is specified in the operating agreement, it is not always clear which laws a court will apply to LLCs in lawsuits.

An LLC may be unable to continue after the death or other exit of a member. A corporation is perpetual.

With an LLC, all of the income is subject to self-employment tax. With a Subchapter S corporation, a reasonable salary (subject to self-employment tax) must be paid and the balance can be paid out as dividends.

While income passes through and is taxed at the individual level and at individual rates with both an LLC and a Subchapter S corporation, there are a number of differences in tax effects relating to transfers of assets, business interests exchanged for services in running the business and disposing of an interest in the business.