Definition of a Limited Liability Company (LLC)
A Limited Liability Company is a hybrid of a corporation and a partnership (if multiple owners) or sole proprietorship (if one owner). An LLC can have more than one owner, and may be classified as a (C) Corporation, S Corporation, Sole Proprietorship, or Partnership for tax purposes.
- LLCs offer the tax benefits of both a (C or S) corporation and partnership. Like a partnership, the LLC's income passes to the owners (called "members" in an LLC), and the owners are taxed on that income. However, as in a corporation, each owner is shielded from the LLC's losses (hence, the term "limited liability") unless the member(s) leverages personal assets for the LLC.
- LLCs are formed in each state according to the state-specific rules.
- LLCs may have W-2 employees. If so, the LLC is subject to normal Federal (Income, FICA, FUTA) and State employment taxes (Income, SUI, SDI, etc.) on wages paid to employees, and will file Form 940 (FUTA Tax return) and Form 941 (Quarterly Return for Income and FICA taxes) for amounts withheld.
- If the the LLC is classified as Sole Proprietor or Partnership (in which both parents are the only partners), wages paid to children are not subject to FUTA taxes. Wages paid by a Sole Proprietor or member in a Partnership to a parent are also not subject to FUTA taxes.
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