Not all states permit single member LLCs. General partners are subject to unlimited liability, but limited partners are subject to liability only to the extent of their investments. A limited partner, unlike a general partner, is not subject to self-employment tax on partnership income unless he or she receives compensation for performing services for the partnership. The passive activity loss limitation provisions may also limit the amount of currently deductible losses. Partners, unlike S corporation shareholders, get basis for the partnership s debt.
Partners can also increase their basis when a change in ownership occurs.
This is not available to S corporations. With the passage of the Taxpayer Relief Act of 1997, the partnership taxable year ends for a partner on the death of that partner, effective for partnership years beginning after Dec. 31, 1997. Many people view LLCs as superior to S corporations and partnerships. The LLC offers liability protection similar to a corporation and, for LLCs treated as partnerships for tax purposes, the tax flexibility of a partnership. In addition, the stringent S corporation rules don t apply.