New Jersey has followed the national trend in creating the “limited liability company,” (known as “LLC”), as an allowable form of business entity under New Jersey business law. The LLC combines the best elements of both a corporation and a partnership.
The Limited Liability Company
A (Limited liability company combines the best qualities of both corporations and partnerships (or sole proprietorships). Like corporations, but unlike partnerships and sole proprietorships, owners (known as “members” in an LLC) are shielded from personal liability for most corporate debts. However, like partnerships and sole proprietorships (but unlike many corporations, especially larger corporations), LLCs are “flow through” entities. This means that the business itself pays no income taxes. The profits “flow through” to the owners, who are then taxed on the profits as their income. This avoids the “double taxation” of corporations, where the company pays taxes on the profits before they are distributed to the owners, and then the owners pay income tax on the remaining after tax profits when they receive them. So essentially members in an LLC only pay tax once, while shareholders in a corporation pay tax twice, which can result in significantly higher after tax earnings for the owners on the same business revenue.