Business Planning FAQs

What IRS forms does a co-owned LLC file?

Unless members elect otherwise, a co-owned LLC is considered a partnership. Though the LLC itself does not pay taxes to the Internal Revenue Service, it files Form 1065, U.S. Partnership Return of Income, and issues each member a Schedule K-1 reporting their share of profit and loss. Members file their personal tax returns (usually Form 1040) and report their LLC distributions on Schedule E.

What is the Management Structure of an LLC?

An LLC is typically managed by its members/owners (referred to as member-managed). In that respect an LLC is unlike a corporation, which has a much more rigid and defined management structure, including directors and officers. All owners of the LLC are typically referred to as members, and they can have control and voting interest proportional to their ownership interest, or in proportions different from their ownership interest.

What IRS forms does a single-member LLC file?

Unless they elect otherwise, the single member of an LLC reports their share of profit and loss in the company on Schedule C of their personal tax return (usually Form 1040).

Which entity has more restrictions regarding owners – an LLC or an S Corp?

There is no limit to the number of members who may own an LLC. Subchapter S corporations are limited to a total of 100 shareholders. Also, members of an LLC do not need to be U.S. citizens or residents like with a Subchapter S corporation. Additionally, all shareholders in a Subchapter S corporation must be individuals, so another entity may not own a Subchapter S corporation.

What is “double taxation” for corporations?

After a C corporation pays taxes, any after-tax profits can be distributed to the shareholders in the form of dividends, or left in the business for future investment. This can cause double taxation for the business owners, when the corporation pays taxes on the profits of the business and any remaining profits are paid out to the shareholders.  The shareholders then pay taxes on the dividend return. The IRS Code sub chapter S addresses this issue for smaller corporations and allows the entity to be taxed as a partnership or a “pass through” tax entity. S corporations have much more limitations on who can be and how many shareholders there are.