R4.3 – LLC Taxation

Question 1

Formation of an LLC

Answer 1

File articles of incorporation with this state where the LLC is organized

Question 2

Features of an LLC

Answer 2

Limited liability company (LLC) is a separate legal entity from its owners

Limited liability

No double taxation

LLC members have the right to amend

LLC operating agreement, provide input, and manage LLCs (corporate shareholders generally can not)

Can not become a public company.
Must convert to a corporation before issuing an IPO

No restrictions on the type and number of shareholders

Question 3

Limited Liability

Answer 3

LLC members are not personally liable for business’ obligations

ALL LLC members have limited liability
vs.
Limited partnership which has at least one general partner who is personally liable for all partnership debt

Question 4

LLC and Federal Income Tax

Answer 4

For federal income tax purposes, an LLC can be taxed as a partnership, corporation, also proprietorship.

An LLC with at least two owners is taxed as a partnership unless an election is made to have the LLC taxed as a corporation
– Election made on form 8832 (entity classification election)

LLC with only one owner will be treated as a sole proprietorship