Upon first glance, this question may sound strange to most people. How can a limited liability company entity also be a corporation?

But the answer to this is actually YES. You see, an “S corporation” designation is not a legal entity choice. Rather, it is a tax designation under the Internal Revenue Code. Before the existence of the LLC entity, the IRS created the S corporation as a way for a corporation that is a small business to avoid the double taxation of the corporate tax structure.

The S corporation rules require that the legal entity meet a laundry list of requirements that are designed to ensure that it truly is a small business as defined by the tax laws. These restrictions related to the number of owners, the type of owners, and a required simplicity of capital structure.

They named it the S corporation election because at the time, only the corporate legal entity qualified to elect S corporation status. However, in 1997, there were regulations passes that enabled the LLC (limited liability company) to also elect S corporation tax status if the LLC also met the laundry list of small business IRS requirements.

So, an LLC can be formed as a limited liability company under state law and gain all the state law benefits but also qualify to be taxed as an S corporation under federal tax laws. This is just one of the many advantages the LLC has over other entities. It offers the most tax choices.

Now, the LLC by default already qualifies for a single layer of taxation and there are no requirements to qualify for this. Accordingly, it does not have the same concern of double taxation as the corporation. Both the LLC default tax structure and the S corporation tax structure offer the same pass through taxation (single level) benefits.

However, there are some differences between the two tax structures that may or may not benefit your particular business. If this is an issue you want to explore, you should seek the advice of a tax attorney or a tax accountant who has ample experience in the differing tax structures.

This is a tricky question because there is always the interplay between the liability protection afforded to an LLC officer under the limited liability company laws and the general law that requires that you be personally accountable for your actions.

Making decisions in a business is difficult.  You need to decide on things when you may not have complete information and you may make decisions that may ultimately prove to not be the best one.  The law acknowledges this and so generally does not hold an officer or a manager personally liable for the acts made on behalf of the business AS LONG AS the person acted reasonably and did his homework when making such decisions.

This is a standard of care that is imposed on those who run a business which benefits others (like the other members) and the specific standard actually differs based on your state.  Some have a very low standard while others impose stricter requirements.  However, the general concept is that you should “mind the business” when serving in your officer role.

Gather all the available information you need in any business situation and take the time to review it.  Consult with your employees or advisers if need be. Spend the time to think through each business decision and always ask what is in the best interests of the LLC business.  If you maintain this standard and engage in some diligence, the LLC liability protection laws should protect you.

One additional protection you could ask for before serving in an officer role is an indemnity agreement where the LLC business will agree to cover your personal liability if one ever came up.  Another layer of protection is requiring a director and officer insurance policy to cover you.

Now, if you engage in unlawful or illegal conduct or you make decisions that are clearly in your interests but not the interests of the LLC business, you could be found personally liable.

Yes, a limited liability company can be formed for any lawful business purpose or purposes.  So, under the LLC laws, there is no restriction limiting an LLC to only doing one business activity.  One LLC can run both a consultancy and a store for example.

Having said this, many entrepreneurs form a separate LLC for each business.  This is because everything owned by each LLC will be subject to the business risks of all activities in the LLC.  For example, if a real estate investor owns three properties and all of them are owned and managed by one LLC, then if a problem with one property arises, all of the properties are at risk.  Say, a tenant slips and falls in one property and gets a large judgment beyond the insurance limits.  In this case, the other properties are reachable by the tenant to fulfill the judgment.

Now, some LLCs are formed as holding companies to own interests in multiple businesses.  This is another great method.  The holding company LLC only owns stock or LLC interests in other businesses so is never at risk for business problems.  Under it are other LLCs or corporations which run the multiple businesses.

Bottom Line.  Yes an LLC can run more than one business but if may be wroth thinking about whether the added liability protection for each business is worth the small costs to form multiple LLC entities for your businesses.

Many business owners want to compare an LLC to a corporation when deciding which legal entity is best for their business.

Both forms offer limited liability protection for their owners.

Generally, the LLC is ideal for the small business enterprise where the ownership is held by one or just a few owners.  The LLC offers more tax choices and a simpler structure which has lesser requirements when it comes to maintenance and governance. The LLC is also a more flexible entity which allows owners to operate their business the way they want.

The corporation is the older of the two entities and is definitely the right choice for a company that wants to go public (have an initial public offering) or one that needs to take in venture capital investors as those investors will require a corporation.

The answer of LLC or corporation depends on your specific situation and many factors to into this inquiry including legal, business and tax matters.  The LLC Expert has recently launched a more in-depth article about the comparison factors between the two entities:  LLC or Corporation?

In 1997, the Internal Revenue Code passed regulations called the "Check the Box" rules which opened the floodgate for new limited liability company formations.  These rules took away very complicated and uncertain regulations for how a limited liability company would be taxed for federal income tax purposes and basically said, "Let each limited liability company decide for itself how it wants to be taxed."

LIMITED LIABILITY COMPANY CAN BE TAXED AS A CORPORATION IF IT DESIRES

Bfore 1997, one of the biggest reasons for choosing a corporation over a limited liability company WAS taxation.  Some businesses were better off being taxed as a C corporation or an S corporation under the IRS rules.  Well now- a limited liability company can choose to be taxed as a C corporation or an S corporation (assuming it meets the S corporation rules) for tax purposes and still get all the advantages of an LLC (limited liability company) under state LLC laws. 

This is the best of both worlds and,in essence, takes away most of the reasons why any small business would ever choose a corporation entity over an LLC entity.  There are no requirements for an LLC to meet if it desires C corporation taxation as long as it makes certain filings in a timely fashion.  If an LLC wants to be taxed as an S corporation, it must meet the same requirements that a corporation must meet to be eligible for S corporation taxation under the IRS laws.

Still today, in practice, many new businesses receive advice from their tax advisers that they should form a corporation instead of a limited liability company and then elect for the corporation to be an S corporation.  Accountants especially will recommend the corporation with the S corporation tax status because this is what they have worked under for years before the LLC was able to achieve this same tax status.  They are just used to the older way- but the older way may not be the best for you given the new options. This advice is usually given because the accountant or adviser is not up to date on the limited liability company as the better and more flexible choice.

A limited liability company imposes much less formalities on owners and provides a more flexible business entity for the small business.  Plus, the limited liability can elect to be taxed as an S corporation- so you get the best of both worlds.

I would definitely defer to your specific accountant or adviser in this decision as he or she should know a lot more about your business in order to arrive at the best advice for you.  However, if he or she advises to form a corporation for a small simple business, I would just make sure that he knows that a  limited liability company (LLC) can be taxed as an S corporation and find out another reason why he is advocating the corporation. 

DEFAULT TAXATION FOR A LIMITED LIABILITY COMPANY

Single Member LLC. If a limited liability company is a single member LLC, the default tax classification is that the IRS will be a "disregarded entity" for tax purposes.  This means that the single member will report all LLC business income on his or her own personal tax return.  It is the simplest method of taxation.  Remember, the entity is only disregarded for TAX purposes not other purposes such as limited liability and governance. 

If the single member LLC wants to be taxed as a C corporation or an S corporation (it must meet the S corporation requirements,) the single member LLC can do so by filing a certain election form with the Internal Revenue Service.  This election form must contain certain required information and must be filed within 75 days from the formation of the single member LLC in order to be taxed as a C or S corporation from its formation date.

Multi-Member LLC.  If a limited liability company has more than one member, the default tax classification is that the IRS taxes the LLC as a "partnership" under the IRS laws.  This is a single layer of taxation and the tax profits or losses flow through to each member and are eventually reported on their personal returns in a Schedule.  The LLC itself also has to file an informational return with the IRS. 

A multi-member LLC can choose to be taxes as a C corporation or an S corporation (it must meet the S corporation requirements) if it makes sense for the business.  Similar to above, an election form must be properly and timely filed with the IRS.

COMMON CHOICE FOR THE SMALL BUSINESS LIMITED LIABILITY COMPANY

The default tax classifications are what they are for a reason.  The great majority of small business limited liability companies prefer the single layer of taxation afforded by the disregarded entity taxation for a single member LLC or the partnership taxation for the multi-member LLC.  However, there are certain instances where corporation taxation may be more beneficial for your limited liability company especially in the area of employee benefits if you have or are planning on having a decent size employment staff or desiring to offer premium benefits to your employees (which may include yourself). 

Speak to your tax adviser for the best tax classification for your limited liability company.

I have had clients that have come to me and said that they have searched high and low looking for information about what is a "limited liability corporation?"  They have found information on corporations and on limited liability companies but nothing on this so called, "limited liability corporation."

Another misnomer is the llc corporation.

This is because there is no such thing as a limited liability corporation or an llc corporation. .  at least there is no legal entity with those official names. Many people mistakenly think there is an entity called a "limited liability corporation".  While the naturally interpretation of this is that they are looking for information on a corporation legal entity (which incidentally does offer limited liability protection), the great majority of people that use the term "limited liability corporation" are really looking to learn more about the limited liability company (also known as the LLC).

Make sure you really understand this because a corporation is a very different kind of legal vehicle than a limited liability company.  A corporation was the gold standard for businesses prior to the uprise of the limited liability company.  While publicly traded businesses and very big companies . . . or those with complicated ownership and tax considerations can choose the corporation over the limited liability company, most small and medium sized, private businesses find that the limited liability company is th preferred vehicle.

So, if you are looking to understand what a "limited liability corporation" is or an llc corporation is, you will not find any such legal vehicles.  Determine whether it is a corporation or a limited liability company that you are inquiring about and then go from there.