The LLC is a state recognized legal entity for conducting business. It works as well for the small individual business owner who is simply seeking to limit legal liability as for a larger business with many owners. The LLC also facilitates changes in its tax classification.
The following example demonstrates the utility and flexibility of an LLC. A small business owner registers his business as an LLC to obtain the protection of limited legal liability. Initially the business is too small to take on the expense of filing its own separate return so the business owner elects to be taxed as a sole proprietor. The business owner needs to file no forms to make this election as the default tax classification for a single member LLC is a sole proprietor. This classification allows the business owner to report the transactions for his business on schedule C which is filed along with his form 1040.
If the number of owners increases to more than 1, the tax classification changes to a partnership, which has to file form 1065 annually along with K1s for each owner....Read More>>