A limited liability corporation is a separate business entity that combines the various characteristics of partnership and corporation to form an entirely distinct legal unit. Limited liability corporations can be broadly distinguished into two forms, namely single-member limited liability corporations and multiple-member limited liability corporations. There can be various other forms of limited liability companies. A professional limited liability corporation can vary depending on the kind of business venture that is filed in as a limited liability corporation. Although all 50 states allow limited liability corporations, the laws of each state differ, and thereby the structure, type, and set-up formalities can vary. In certain states, banks and farms are not allowed to set up limited liability corporations. A single-member limited liability corporation is generally overlooked from the point of filing a federal tax return, although it is a legal entity in its right. It may be classified as a sole proprietorship either by default or by election. The earnings and expenditures of a single-member limited liability corporation can be accounted in Form 1040, schedule C. In case of a multiple-member limited liability corporation, either a partnership return form or a corporation return form can be filed. A partnership return is filed in Form 1065, while a corporation return form is filed in Form 8832. A limited liability corporation can be either a domestic limited liability corporation or a foreign limited liability corporation. Filing as a foreign limited liability corporation means that one has to pay the qualifying fees to the state, apart from the normal filing fees. The corporation also has to pay the annual taxes at the domestic state where it had been originally incorporated. It is always advisable to file a limited liability corporation at site of maximum business. The various advantages and benefits of pass-through taxation, flexible management, investment, type and number of members, distribution of profit and limited liability protection remain unchanged in the various types of corporations. However, with multiple memberships it is better to have an operating agreement drafted by all members to overcome various operational hazards. |
