Download Limited Liability Companies: Understanding Taxation, Liability, Ownership, and Control and more Thesis Financial Accounting in PDF only on Docsity! D078 describe an LLC in your own words. describe how it would affect each of the following factors: taxation, liability, ownership and control Limited Liability Company (LLC) An LLC, or Limited Liability Company, is a flexible form of business structure that combines elements of partnership and corporate structures. It is a legal entity separate from its owners, which are known as members. LLCs are popular because they offer the limited liability features of a corporation with the tax efficiencies and operational flexibility of a partnership. Taxation LLCs offer a "pass-through" tax treatment, which means that the business itself is not taxed on its profits. Instead, the profits and losses of the business "pass through" to the individual members, who then report this information on their personal tax returns. This avoids the double taxation that can occur with corporations, where the company pays taxes on its profits, and then shareholders pay taxes again on dividends. Liability One of the primary advantages of an LLC is the limited liability protection it offers to its members. This means that members are typically not personally responsible for the debts and liabilities of the business. Their risk is limited to the amount of money they have invested in the LLC. This protection is similar to that of a corporation and is a key reason why many choose to form an LLC. Ownership LLC ownership is highly flexible and can include individuals, corporations, other LLCs, and foreign entities. There are no restrictions on the number of members an LLC can have. The LLC can be managed by its members (member- managed) or by a group of managers (manager-managed) who may or may not be members themselves. Control Control of an LLC can be outlined in an operating agreement, which is a document that specifies the management structure and how decisions are made. In a member-managed LLC, all members typically have an equal say in the company's operations, unless the operating agreement specifies otherwise. In a manager-managed LLC, members appoint managers to handle the daily operations, and the managers may have more control over the business than the members. In summary, an LLC is a popular business structure due to its flexibility in taxation, limited liability protection for its members, and adaptable ownership and control options. It allows for a more straightforward and potentially less costly way to run a business while providing essential protections and benefits.
