A limited liability company (LLC) is a cross between a partnership and an S corporation. This form of business entity is popular among foreign entrepreneurs because LLCs have been used around the world for over 100 years. You might consider forming an LLC instead of an S corporation if you answer "yes" to any of the following questions:

• Will there be more than 75 owners?
• Will the company issue more than one class of stock?
• Are any of the owners a business entity or nonresident alien?
• Will the owners want to use business debt to increase their tax basis?
• Does your state tax the profits of S corporations but not those of LLCs?

Management
Members will closely resemble shareholders if the LLC uses managers to manage the business, because members will not share in the operation of the business. If the LLC does not use managers, the members will be more like partners, since they will have direct control in running the company. The number of members required by each state varies.

Liability
Just as with C and Subchapter S corporations, members of an LLC are not held personally responsible for the debts and liabilities of the company.

Continuity
The LLC is separate from its owners. If a member dies or leaves, the LLC continues to exist. But, an LLC cannot go on forever. Most state laws limit LLCs to a life of 30 years.

Transferring ownership
The other members must approve a new member before a transfer can be made.

Taxes
The LLC is treated like a partnership and S corporation, unless the members elect to have it taxed like a C corporation. The LLC must complete a business income tax return, but it does not pay taxes. Instead, the profit or loss of the LLC, as shown on its return, is reported on the owners' individual income tax returns. To receive federal partnership pass-through tax treatment, an LLC should have at least two members.

LLC members can divide income and tax liability among themselves as distributions of partnership income. Equal partners can even change the allocations of profit or loss from year to year to benefit their individual tax needs.

No uniform laws
LLC regulations vary from state to state. This could be a problem if you want to get the LLC qualified to do business outside of your state. If the business is not properly qualified, that state’s law may allow a claimant to "pierce the corporate veil" and make individual members personally liable for corporate debts.

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