Tamara L. Harper Corporate Law Blog on Lawyers.com

DIFFERENT ENTITIES VERSUS AN LLC

C Corporation Versus LLC

            While LLCs have many advantages, they are not the preferred choice of entity for every business venture.  For example, C corporations, unlike LLCs, are subject to double taxation, and corporate losses remain in the corporation, unable to be utilized by the corporation's shareholders, while the losses of an LLC pass through to and may be deducted by the members.  Yet, if the business is profitable, how losses are treated will not be an issue, and it is often possible to avoid double taxation through the use of salaries and shareholder loans.  Corporations may also be preferred when most income is reinvested in the business.  Furthermore, a corporation can deduct medical expenses for all shareholder-employees, and the receipt of this benefit will not be income to the persons insured, while LLC members are subject to taxation on the receipt of such benefits.  Thus, where the ability to pass through losses is irrelevant, and where it is possible to minimize taxable income through the use of salaries and loans, or where medical insurance expenses are substantial, the corporate format may be preferable.

S Corporation Versus LLC.  Entities that wish limited liability and pass-through tax treatment but are ineligible to elect S corporation status may find LLCs an attractive alternative.

Partnership Versus LLC.  It appears that an LLC would almost always be preferred to a general partnership in circumstances where either is an appropriate vehicle.  For lawyers and accountants, the limited liability partnership may be the preferred vehicle.

Limited Partnership Versus LLC

            The principal advantages of LLCs over limited partnerships are that all owners avoid liability for business debts, and all members can participate in the management of the business without fear of incurring liability.  LLCs may have numerous active investors with more freely transferable interests, and may be structured so that the withdrawal of a passive investor will not cause the dissolution of the entity.

Real Estate Investments, Joint Ventures, Venture Capital

            LLCs should be particularly attractive entities for real estate investments, because they combine limited liability and flexible management with the ability to pass through losses and deductions, make special allocations, and avoid double taxation on the sale of appreciated assets.

            LLCs should also be attractive for joint ventures.  LLCs are preferable to general partnerships because of the limited liability they provide to members (thus eliminating the need for a venturer to form a special purpose corporation) and are preferable to corporations because of pass-through tax treatment and the avoidance of double taxation.

            Finally, LLCs may be attractive to venture capital, because of the organizational and structural flexibility of LLCs, the members' ability to actively engage in management without fear of liability, and the tax advantages of making special allocations and deducting losses. However, the greater familiarity of the corporate form may facilitate rapid investment in certain ventures.

Harper & Associates, P.C. gives piece of mind to business entrepreneurs who desire to protect their assets, ideas, and wealth by showing them how to limit their liability exposure, register their intellectual property, and hold property in trust.  Tamara L. Harper, Esq. assists small to mid-size companies in the real estate, bio-tech, restaurant, and service industries with initial formation, business sale or acquisition, and investor capitalization in addition to registering and defending intellectual property rights.