LLC Fee Increase

LLC PROS AND CONS

Limited Liability Companies (LLC's) allows its owners to limit their personal responsibility for losses or legal claims to what they have invested in the LLC. (But, they can't avoid personal liability for most acts they do personally). Regular and Sub S Corporations also offer limited liability much as LLC's.

Regular corporations are taxed on income. They can pay their stockholders dividends. But the corporation has to pay income tax on their earnings before dividends. Then the stockholders have to pay tax on the dividends they receive. (That is why the tax on dividends was reduced in 2003.

Sub S corporations and LLC's pass income through to stockholders without double taxation. However, capital gains advantages may be lost by using an LLC.

Unlike Sub S corporations. an LLC can have an unlimited number of owners, and other flexibility. But an LLC cannot have unlimited life like a Corporation. The maximum life is determined by the state laws involved.

Watch out that you don't sign personal guarantees that overcome limited liability! These are typically required by banks (as security for bank loans), and sometimes even by suppliers. [If you are a supplier - It won't hurt to try to get a personal guarantee from someone at the LLC! You might get paid faster.]

LLC form.

Limited Liability Companies that are not classified as Corporations for California Franchise or Income tax purposes have two taxes imposed on them as follows:

• They have a $800 Privilege Tax that is like the Privilege Tax imposed on Limited Partnerships (No General Partner).

• The second tax imposed is a fee based on their level of (gross) income

I am NOT an expert on LLC's! My clients have used Sub S corporations successfully for many years. I do prepare LLC returns, but I can't advise in depth about LLC planning aspects or choice of an LLC as a preferred entity.

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