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Mintz “the LLC provides the protection from liability of a corporation without the formalities of corporate minutes, bylaws, directors, and shareholders” (Mintz, 2016). It is because of this that allows LLC members to be protected under the liability shield law from some or all liability. However, one thing members need to be aware of is that they are fully responsible for all partialities caused by them (the members) to the company, an example of this would be illegal payments made to shareholders by the members (Cristea & Ifrim, 2013). One benefit limited liability offers LLCs is that certain debts can be left unpaid. A huge reason this is possible is thatlimited liability companies are a combination of the benefits of ownership as well as the benefits of a corporation and their personal protection against both debts and judgments (Childress & Mason, 2009). While limited liability and unpaid debts are nice, the number one advantage in choosing a limited liability company is not having to pay your own taxes. Instead, members of the LLC are to report profits and losses on their own individual income taxes. But if there is only one member of an LLC, they can elect how they want to treat their profits and losses for
Forms of Business Organizations and Taxation9income tax purposes. For example, many single member LLCs choose disregarded entities whenit comes to their income taxes (Mintz, 2016). Just like every other business organization, limited liabilities have their disadvantages. One disadvantage of choosing an LLC as your business organization is members are subject to self-employment taxes. LLCs that are making profits require all members involved in the LLC to pay taxes on profits made by recording them on individual tax returns. Self-employment taxestend to be higher than what corporation taxes are when they file their profits because when individuals file self-employment taxes they also have to pay social security and Medicare taxes on top of that. Self-employment taxes consist of two components: the old-aged survivors and disability insurance (OASDI) and the hospital insurance component. The OASDI side of self-employment taxes is linked to the maximum social security wage base. The social security wage, which is capped at $106,800, taxes self-employment income at 12.4 percent. The other side of self-employment taxes, hospital insurance, is not capped and taxes self-employment income at 2.9 percent (Todd, 2011). While filing self-employment taxes is a huge disadvantage, another disadvantage when it comes to limited liability companies is the fact that it is the newest form of business organization in the United States. Some laws and regulations involved with LLCs are still going through a transition period, because of this, the LLC business structure is not available in certain states. If the state your organization is in does not let you register your business as an LLC, you are not able to take advantage of the benefits that come with being a limited liability company (Lorette, 2016).