Taxation Of Llcs
THE TAXATION OF LIMITED LIABILITY COMPANY (LLC)
I. INTRODUCTION
Traditionally, businesses are categorized any of the three forms of organization: sole proprietorship, partnership, and corporation. Since the economic environment evolves through the passage of time, the organizational forms that play vital roles in the business playfield was not exempted from this change. In a taxation point of view for instance, corporations are divided into C type and S type. National taxation laws offer different advantages and disadvantages for these entities. As such, many other business organizational forms developed such as limited liability partnerships (LLP), professional limited liability partnerships (PLLP), and the subject of this paper, limited liability company (LLC).
An LLC is defined as an unincorporated company formed under applicable state statute whose members cannot be held liable for the acts, debts, or obligations of the company and that may elect to be taxed as a partnership. According to Humphreys, LLC's are destined to be the common choice of entity for private business and investment enterprises. It possesses the foremost features of both partnership and corporation, and thus, considered as a hybrid version of both. The choice is swayed by LLC's numerous advantages if seen in different viewpoints.
In terms of owners' liability, it enjoys protection like that of a corporation. Creditor claims would be limited to what the LLC possesses and does not extend to the personal assets of owners (which are called "members"). Exception to this advantage is when a member signed a personal guarantee or engaged in wrongful conduct meant to defraud the LLC or its clients or customers, in which case the court may "pierce the corporate veil." In the viewpoint of organization, the tenets imposed on LLC's are less complex than that of most states impose on forming corporations. Examples of these are the waiving of...
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