LLCs are the most flexible of all of the business entities. Depending on the state, there might not be any formalities the LLC has to follow to operate.
You define how your LLC operates in the operating agreement that your attorney drafts. LLCs have limited liability, so any owners of the LLC are not personally liable for any of the company’s dealings.
Any person or entity can have an ownership interest in an LLC, and there is no limit on the number of people or entities who can have an ownership interest in the LLC.
With an LLC, multiple levels of distributions can be paid out to owners, and ownership interest doesn’t have to equal the share in profits and losses.
The IRS doesn’t recognize an LLC as a taxable entity, so the way that LLCs file taxes depends on several factors.
If the LLC has one member, then by default, it will file taxes as a sole proprietor. If the LLC has more than one member, then by default, it will file taxes as a Partnership.
However, an LLC can elect to be taxed as a Corporation. Even better, the LLC can choose to be taxed as an S Corporation, which provides the benefits of not paying self-employment taxes and not having strict corporate formalities to follow.
Since S Corporations have ownership restrictions, an LLC that elects to be taxed as an S Corp has to comply with those restrictions to qualify.