Video instructions and help with filling out and completing How Form 5495 Liabilities

Instructions and Help about How Form 5495 Liabilities

I've saved my discussion of limited liability companies or LLC's for last first because they are relatively speaking the new kid on the block and second they're a hybrid entity the first LLC was formed in Wyoming in 1977 and it caught on like wildfire due to the personal asset protection and tax flexibility it offered its owners an LLC is a hybrid business entity combining many of the positive characteristics of both a corporation and a partnership presumably giving the owners the best of both worlds like a corporation an LLC is a legally distinct entity separate from its owners it has the power to sue and be sued just like a corporation it provides similar limited liability protection as that of a corporation but has the pass-through tax benefits of a sole proprietorship and partnership an LLC comes into existence when prospective members file a charter document with a state's business entities Department which is usually the Secretary of State the owner of the Nell Elsie are called members and membership units represent a members ownership interest an LLC can have one or more members LLC's offer a flexible management structure they can be either member managed or manager managed in a member managed LLC each member has an equal voice in the decision making process of the company much like partners in a partnership most LLC's are member managed in a manager manage two LLC the members specifically designated manager or managers who may or may not also be members to manage the company much like officers in a corporation by default the IRS treats single-member al Elsie's is a sole-proprietorship and multiple member LLC's as partnerships meaning that they are initially treated as pass-through entities however all LLC's can elect to be taxed as either a C or S corporation by filing form 8832 with the IRS so what are the advantages of forming an LLC first and foremost is the limited liability protection afforded its owners the members cannot be held liable for company losses or debts and business credit and they don't have to give up personal assets such as a house or a car to satisfy those business obligations second by default LLC's are not subject to double taxation like corporations an LLC is treated as a pass-through entity meaning that the company itself will not be taxed unless it elects to be taxed as a corporation the individual members report all business profits losses and expenses on their individual income tax returns third LLC's require far less paperwork and record-keeping than a corporation most states don't even require an operating agreement though it is still a good idea to create one so that you can choose the specific rules that will govern your company if you do not create an operating agreement your company will by default be governed by the LLC statutes of your state most states also do not require LLC's to hold formal annual meetings that are required of corporations fourth members can choose to have profits distributed any way they would like this means whatever percentage of the profits they want to give each member they have the flexibility to do so regardless of their specific ownership interest finally an LLC lends credibility to your business by showing your potential customers employees vendors and partners that you have made a formal commitment to your business the disadvantages first LLC law is not as developed as corporate law and many issues remain to be decided second it is more difficult to transfer your ownership interests third it is more difficult to raise capital for an LLC many investors in venture capital firms will only invest in corporations finally not every business can become an LLC some specific businesses such as banks or insurance companies are not allowed to form an LLC and in many states if you are a licensed professional such as an accountant or attorney you cannot form an LLC