Who Gets K.O.'d by the K-1?

The Creditor or the Debtor?

Michael Geeraerts, JD, CPA, CGMA, CLU

The limited liability company (LLC) is becoming the preferred entity to conduct business, largely due to the limited liability protection offered to owners and the ability to elect to be taxed as a partnership, which allows for flexible, pass-through income taxation. While C corporations afford limited liability to shareholders, the double taxation of earnings is often a sufficient deterrent to avoid doing business as a C corporation. And while shareholders of S corporations have limited liability as well, the pass-through taxation system for S corporations is not as flexible as the pass-through taxation system for partnerships. Partnerships do not generally provide limited liability protection; limited partnerships provide some, but usually at least one general partner is subject to unlimited liability. Thus, the LLC combines the best of both worlds—limited liability for all owners and partnership pass-through taxation.