When Are Limited Liability Companies a Poor Choice?
- Non Pass-Through Entities. When there is a need to retain income in the business, a “C” Corporation is better than an LLC.
- Phantom Income Problem. When a business is retaining its earnings to invest in machinery and equipment, pass-through entities such as an LLC could result in phantom income. A “C” Corporation is a better choice.
- Pension and Retirement Plans. A “C” Corporation is better for many retirement plans. In addition to maximizing retirement plan benefits include borrowing from such retirement plan, a “C” Corporation would probably be better than an LLC.
- International Businesses. Although for management purposes an LLC may be appropriate, the foreign government may have unfavorable tax treatment.