ADVANTAGES

• Choice of tax regime. An LLC can elect to be taxed as a sole proprietor, partnership, S corporation or C corporation , providing for a great deal of flexibility.
• A limited liability company with multiple members that elects to be taxed as partnership may specially allocate the members’ distributive share of income, gain, loss, deduction, or credit via the company operating agreement on a basis other than the ownership percentage of each member so long as the rules contained in Treasury Regulation (26 CFR) 1.704-1 are met. S corporations may not specially allocate profits, losses and other tax items under US tax law.
• Limited liability, meaning that the owners of the LLC, called “members”, are protected from some or all liability for acts and debts of the LLC depending on state shield laws.
• Much less administrative paperwork and record keeping than a corporation.
• Pass-through taxation (i.e., no double taxation), unless the LLC elects to be taxed as a C corporation.
• Using default tax classification, profits are taxed personally at the member level, not at the LLC level.

DISADVANTAGES

• Taxing jurisdictions outside the US are likely to treat a US LLC as a corporation, regardless of its treatment for US tax purposes, for example if a US LLC does business outside the US or a resident of a foreign jurisdiction is a member of a US LLC.
• The principals of LLCs use many different titles—e.g., member, manager, managing member, managing director, chief executive officer, president, and partner. As such, it can be difficult to determine who actually has the authority to enter into a contract on the LLC’s behalf.