What You Need to Know About Oregon Limited Liability Companies
Every great business begins with an idea. That idea leads to action, which will hopefully result in success for years to come. Business success is built upon a foundation of entity selection. Picking the right legal organization for your new business is of vital importance, and can make a huge difference in the legal liability to which you are exposed, the taxes you pay and the way in which your business’ profits are recognized.
One business entity selection has proven to be more beneficial for tax purposes than others – the limited liability company, better known as the LLC. Aside from the benefits associated with greater flexibility in corporate governance, an LLC will protect the business’ owners from being held personally liable for business debts or civil lawsuits. By carefully crafting an operating agreement (the LLC counterpart to a corporation’s bylaws), the members can tailor the business form to meet the needs of the business venture. An LLC also arguably has the greatest tax benefits for small business owners, since it offers a wide range of taxation rate possibilities.
LLC Tax Elections
The federal tax code offers a wide range of flexibility, depending upon how the owner/owners choose to report the business income. By using “pass-through” taxation, it may be possible for the business owner to enjoy a lower tax rate than he or she would as a self-employed single taxpayer. Taxation treatments of an LLC include:
- Single-member LLC as “disregarded entity” (the purest form of “pass-through” taxation where a single business owner reports the income of the business on his or her personal tax return)
- LLC as Partnership (multiple owners of an LLC can each individually pay self-employment tax on their portion of the profits)
- LLC as C Corporation (tax returns are filed on behalf of the business itself, not the individual owners, subjecting profits to the corporate tax rate instead of the individual rate; dividends paid to individual owners are taxed separately than the profits of the business)
- LLC as S Corporation (the corporation is treated as a sole entity by the IRS, but company profits aren’t taxed at the prevailing corporate rate; each owner of the LLC pays taxes on his or her share of profits as regular income, not as self-employment income)
Choosing the best entity for your business can make or break you, and the ramifications of an improper entity selection can last for years. The advice of a skilled business law attorney will allow you to establish your business on sound financial footing and be able to make decisions in the best interest of your company for years to come.