Although long a business staple in Europe and South America, LLCs are relatively new in the United States. It wasn't until 1977 that Wyoming wrote regulations legalizing LLCs. Slow in gaining recognition, LLC regulations were scarce until 1988 in most other states. The IRS was equally docile, originally mandating that LLCs be taxed as partnerships, meaning that they had to have more than one owner, called "member" in an LLC context. After pressure from the American Bar Association and accountants, many state regulations began permitting one-member LLCs, and the IRS permitted one-member LLCs and allowed four choices for LLC taxation in the 1990s.
C and S Corporation Differences
C corporations are the standard business organizations most people know, like Fortune 500 and all publicly traded companies whose stock is available for purchase by the general public. S corporations are legally identical to C corps, but their stockholders elect to be treated more like LLCs and partnerships. S corps are not taxed as individual companies, but pass through all profit to their stockholders. Owners then add their share of profit to their personal income for tax purposes.
C corporations are taxed on their profits per IRS regulations, so profit distributions to LLCs that own C corporations have "double taxation": once on C corporation profits, and again on the remaining profit distributions as dividends to the LLCs, which pass through to LLC members to be taxed when members file their their personal returns.
Owning C corporations, which permits easy ownership changes, stock sales to raise needed capital and perpetual legal existence, can be lucrative for LLCs. The inherent difficulties of attracting investment funds and owner additions/changes of LLC regulations can help members participate in successful corporate events without worry about stock prices or C corporation operations. The LLCs can be separate operating entities or composed of passive members who are investors desiring positive returns.