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Advantages of LLCs

Same pass-through features of an S corporation, which avoids double taxation of profits.

Flexibility of a partnership without the restrictions of an S corporation. For example, an LLC is not limited to one class of stock, the number of members is not limited, any entity can be a member, and it can have flexibility in its profit/loss allocation. An LLC can allocate start-up losses to investors in order to attract capital, whereas an S corporation cannot.

In comparison to a limited partnership, an LLC offers liability protection for all members, whereas the general partner in a limited partnership has unlimited liability. Also, if a limited partner in a limited partnership participates in management, the limited partner is exposed to personal liability. An LLC member who participates in management is generally not exposed.

Contribution of appreciated property to an S corporation is a tax-free event if the contributing shareholders control 80% or more of the stock after the contribution. A contribution of appreciated property to an LLC treated as a partnership is tax free regardless of how much control the contributing partner has.

Liquidation of an S corporation interest is a taxable event and is treated as if the corporation sold the liquidated assets at fair market value (FMV) to the shareholder. Liquidation of an LLC treated as a partnership is generally a tax-free event.