The Limited Liability Company (LLC) is the most favored entity choice for small business owners in North Carolina. What makes the LLC so attractive for the owner of a new business is its blend of qualities from both the corporate and partnership structures. As with a stockholder in a corporation, a member of an LLC enjoys a limitation on potential liability for business carried on in the LLC’s name and has no personal liability except to the extent of any capital contribution. Tax treatment may be elected by the LLC, allowing the LLC to be taxed either as a corporation or as a partnership, resulting in pass through tax treatment that provides for both income taxes and depreciation to flow to members.
In addition to the attractive combination of positive tax treatment and limited liability, the LLC also allows for nearly endless customization of the business relationship between the members. The North Carolina Limited Liability Company Act recognizes that the members of an LLC may use the operating agreement as a means to customize the businesses governance and management to fit the specific needs of the owners. The Venture Law Firm regularly advises business owners in Raleigh, Durham, Cary, Chapel Hill, and other areas of North Carolina regarding the crafting of an operating agreement specific to their company’s individual needs.
However, LLCs are not for everyone. For many startup companies, especially tech startup companies or other entrepreneurial companies looking for outside financing, the LLC is often not the best entity. Many venture capital and angel investment funds shy away from companies organized as LLCs because of tax and structural concerns. The experienced business attorneys of the Venture Law Firm are available to assist you in exploring whether or not an LLC is the best entity for your company.
Advantages
- All members enjoy limited personal liability.
- No limitation on the number or types of members.
- Centralized management is available if an LLC is manager managed.
- Business profits are subject to only one tax, at the individual member level, and are not subject to double tax as would be the case if the profits were earned by a C corporation.
- Losses are available on the members’ personal income tax returns and can offset other income (subject to the at risk rules and passive loss rules).
- Special allocations may be made for income tax purposes.
- Disproportionate distributions may be made to members.
Disadvantages
- Some formalities are required for organization and operation.
- Qualification is required for doing business in other states.
- Regular reporting to governmental entities is required.
- Termination results from the death, disability, or withdrawal of a member under the laws of some states.
- Interests are not freely transferable.
- Business profits are taxed as income to the individual members and, as a result, may be subject to self-employment tax as well as income tax.
- Transfer of interests may be subject to securities law regulation.
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