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Distributor's Link Magazine Summer Issue 2011 / VOL 34 / NO.3


36 THE DISTRIBUTOR’S LINK Bart Basi Dr. Bart A. Basi is an expert on closely-held enterprises. He is an attorney, a Certified Public Accountant, and President of The Center for Financial, Legal & Tax Planning, Inc. He is a member of the American Bar Association’s Tax Committee on Closely-Held Businesses. THE LLC AND ITS OFFSPRING - THE SERIES LLC Background We all know of the Limited Liability Company or LLC for short. The LLC is a newer form of business as opposed to S Corporations, C Corporations, Sole Proprietorships, and Partnerships which have all been around for a while. A Limited Liability Company (LLC) is a business structure created and allowed for by state statute. Though states vary, most states also permit “single member” LLCs, those having only one owner. The name of an LLC MUST include LLC, L.L.C., or Limited Liability Company AND CANNOT HAVE Inc, Corp, Corporation, or Incorporated following name. Formation To form an LLC, the founder files the Articles of Organization with the respective state. The Articles of Organization are similar to Articles of Incorporation, which a corporation, being an S or C status would file. The fees in Illinois are 0 for a standard LLC and 0 for the Series LLC. Compare this to the fees for an S Corporation of 0 The election to be taxed as the new entity will be in effect on the date the LLC enters on line 8 of Form 8832 with the Internal Revenue Service. However, if the LLC does not enter a date, the election will be in effect as of the form’s filing date. The election cannot take place more than 75 days prior to the date that the LLC files Form 8832 and the LLC cannot make the election effective for a date that is more than 12 months after it files Form 8832. However, if the election is the “initial classification election,” and not a request to change the entity classification, there is relief available for a late election (more than 75 days before the filing of the Form 8832). Members Owners of an LLC are called members and they own units as opposed to shares as in a corporation. Members enjoy limited personal liability for the debts and actions of the LLC. Since most states do not restrict ownership in terms of number and type, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. This is one of the passive benefits of the LLC. Management Like a partnership, an LLC provides management flexibility allowing any member to legally participate. This is in contrast to Limited Partnerships that have a rigid form of management limited to general partners. Taxation LLCs have the benefit of pass-through taxation, meaning income is not taxed at the company level, instead the income “flows through” to the shareholder’s personal tax return. An LLC that is not automatically classified as a corporation can file IRS Form 8832 to elect their business entity classification. A business with at least 2 members can choose to be classified as an association taxable as a corporation or a partnership, and a business entity with a single member can choose to be classified as either an association taxable as a corporation (C or S Corporation) or disregarded as an entity separate from its owner, and use a schedule C on the owner’s personal income tax return. Form 8832 is also filed to change the LLC’s classification. please turn to page 122

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