After reading the chapter, review the following topics below, choose one (1) and

Question

After reading the chapter, review the following topics below, choose one (1) and contribute to either:

LLCs

Discuss the pros/cons of a LLC. Does your state allow the LLC form of business?

At-Risk Rules

Discuss the At-Risk rules and the passive loss rules. How do these rules affect a taxpayer? Should we have these rules?

In order to earn the full points for this assignment, you must:

Begin your post with the Topic Name

Directly and completly answer the question.

Include examples, illustrations and/or applications in your answer. If you copy information from the Internet, you must cite your source.

Respond to one of your classmate's post on one of the OTHER topics.

Explain the reason for your agreement or disagreement or why you think the post is important, and/or providing examples of the point(s) made. Just replying "I agree with you" does not constitute a valid reply.

Reminder: Please make sure to comply with all Netiquette Guidelines listed in the Getting Started module.

LLCs

Discuss the pros/cons of a LLC. Does your state allow the LLC form of business?

At-Risk Rules

Discuss the At-Risk rules and the passive loss rules. How do these rules affect a taxpayer? Should we have these rules?

Explanation / Answer

Answer

Discuss the pros/cons of a LLC. Does your state allow the LLC form of business?

Advantages of a Limited Liability Company

Limited liability: Members’ liabilities for the debts and obligations of the LLC are limited to their own investment. If your company gets sued, your personal assets, like bank accounts and real estate, are protected. At most, you can only lose the money you put into the business. Keep in mind that this protection is not all-encompassing. Members can still be held liable for criminal behaviour or if they neglect to follow certain rules about business management.

Pass-through taxation: For taxation purposes, income from your business can be treated as your own personal income, and is therefore not subject to certain federal taxes for which corporations are liable.

Limitless ownership: Some legal structures limit the number of people allowed to file as owners. With an LLC, there is no limit to the number of owners. An LLC can have one member or hundreds of members.

Allocation flexibility: In an LLC, the amount of money that owners invest into the business doesn’t need to equal their percentage of ownership. When an LLC is formed, members create an operating agreement, in which different percentages of company profits and losses can be assigned to owners regardless of the amounts of their initial investments. So you can make a arrangement with an investor to have them finance half of your business without necessarily owning have of your business.

Freedom in management: Unlike standard corporations, LLCs are not required to have a board of directors, annual meetings, or strict book requirements. This can free up a lot of time and stress to let you run your business on your own terms.

Disadvantages of a Limited Liability Company

Capital: Unlike corporations, which can issue stock in order to increase funds for their companies, LLCs have to work a little harder to find investors and sources of capital due to the greater legal obligations and state filings involved to add a new member to an LLC.

Higher fees: LLCs must pay more fees to file as LLCs compared to some other business entities or sole proprietorships. Additionally, many states require yearly renewal fees.

Government regulation: Because of the protections afforded to LLCs, some types of businesses are ineligible to file as LLCs. Banks, insurance companies, and medical service companies are examples of businesses that may be barred from filing in your state. These rules can vary from one state to the next.

Taxation: Although LLCs allow owners to avoid federal taxes, your firm may actually end up paying more that it would with a different model, depending upon your state’s personal income tax requirements, and the nature of the business.

Confusion across states: The rules regarding LLCs vary from state to state. If you decide to start doing business in multiple states, it may become tricky to understand and abide by all the requirements of each state, and in some cases it may be necessary or preferred to form subsidiary entities to operate in other states.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.