All states have adopted laws providing for limited liability companies. Describe a limited liability company (LLC).
What will be an ideal response?
An LLC often combines the legal benefits of a corporation with the tax benefits of a partnership. Whether an LLC is characterized as a corporation or a partnership for federal tax purposes depends on the number of corporate characteristics that are present. An LLC should be treated as a partnership if it has the centralized management and limited liability characteristics of a corporation, but does not have the free transferability of interest or continuity-of-life characteristics. If treated as a partnership, they offer more flexibility than an S corporation in that there is no limit on the number of shareholders, the number of classes of stock that can be outstanding, or the types of investments in related entities that can be made. The increased flexibility being written into some of the state LLC laws concerning the various corporate characteristics has resulted in the LLCs created in certain states being treated as corporations or partnerships, depending upon the terms of the LLC's organizing document. However, the IRS implemented a system that allows LLCs to designate via a check-the-box mechanism whether they wish to be taxed as a partnership or as a corporation. It is anticipated that most new LLCs will desire to be taxed as a partnership (their default treatment) when they have two or more owners.
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Indicate whether the statement is true or false
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