Essay on Limited Liability

Limited Liability Companies and S Corporations are viable ways for organizations to compete in today’s economic environment. Each form of business has its own strengths and weaknesses that can be beneficial and detrimental in different settings. Limited Liabilities can be characterized by different tax incentives, ownership, and liabilities. LLC’s are quickly becoming the popular choice of many small businesses in the Unite States. LLCs combine the most favorable attributes of general partnerships, limited partnerships, and corporations. (XXX) LLCs have the benefits of being taxed on entity level. This means the owner(s) have to file gains and loses in their individual tax forms. Filing on an individual level benefits the owners because they are able to avoid double taxation. An LLC organization also mitigates the risk placed on owners. LLC’s are treated as individual entities; therefore owners are not liable for any actions taken against the organization. Many small business owners have opted to form LLCs because of the limited risk it places on their personal assets. S corporations also have their benefits in today’s business environment. Like the LLC, S corporations have limited risk. S corporations are seen as their own legal entity and does not hold the owners accountable for actions taken again the organization. S corporation differ from most forms of business. Multiple individuals that buy into the company own the organization, owners are referred to as shareholders. Each shareholder is entitled to a certain fraction of the organization. S corporation can have no more than 100 shareholders. S corporations are also subject to different tax rules. Shareholders must pay a corporate tax as well as individual tax. This is referred to as double taxation. In order to compete in today’s business environment it is important to realize the benefits and weaknesses of each form of business. Different demographics, environments, and preferences will determine which form of business would be a better choice. In the following passage I will provide different scenarios for Limited Liability Companies and S corporations.
LLC’s are quickly becoming the business form of choice for small businesses. I believe this reflects the ideal scenario for an LLC. In a small business environment, conditions are unpredictable and an enormous amount of risk can be placed on the owner(s). In many cases small business must take out small business loans to get on their feet. The current economic market makes the risk involved in taking out a loan even higher. Small businesses owners also benefit from an LLC from a tax standpoint. Owners do not have to pay taxes on the business, they must account for income in their individual tax. When money is tight saving additional funds can be a major advantage over other form of small businesses operating in the area. For example, if John Smith decides to open his own t-shirt company in the form of an LLC he will have to take out loans for property, presses, ink, screens, advertising, ect. An LLC will protect his

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