While I know everyone here is a legal expert due to the number of people on WickedFire that have mugshots online, and have felonies on their records, maybe it'd be prudent to have one of our legal minds chime in.
inb4 mont7071
inb4 aaronklaw
^^^ This.
I'm a Nevada asset protection attorney in my day job, so I'll chime in. There are two different issues being thrown around with the LLC: taxation and protection. They are not related at all. WellGrounded and mgrant are correct in that you can choose how your LLC is taxed. How the entity is taxed depends on how many owners there are. Your choices are: (1) disregarded, (2) partnership or (3) corporation. You can read up on that here:
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Limited-Liability-Company-(LLC)
Regarding asset protection, there are two types of liabilities you have to think about - inside liability and outside liability. Inside liability is one coming from the operation of the LLC (Ryan Eagle comes to mind...) Outside liability would be if you are driving your car, wreck and kill someone (and it's your fault).
The LLC that is set up and run properly separates the inside and outside liabilities. A LLC problem should not reach to your assets and the personal problem should not reach to the LLC's assets. A good lawyer will try to show that you did not set up and run the LLC properly to break down this separation.
To keep the separation up for inside liability you need two things to work in your favor: (1) timing, (2) proper money flow/formalities. The timing has to deal with what is commonly known as "fraudulent conveyance" or "fraudulent transfer" laws. In essence, the law does not allow you to move assets from the LLC to you personally to avoid LLC liabilities (think Ryan Eagle again). If you can put a face with the "threat" it is probably too late as far as timing goes. Set up things right when the seas are calm and you can weather the storm. The money flow/formalities has to do with keeping separate accounts for the business that do not pay for personal expenses, etc. and having a good operating agreement, insurance, etc.
To keep the separation up for outside liability you need the same two items as above (timing and money flow/formalities), but the other concern is whether a person suing you personally can take your ownership in the LLC. This is where charging orders come in. A charging order is a directive by a judge in a lawsuit that the person suing you can intercept any distributions of cash coming from the LLC to you personally. This would include a salary or payment of a dividend/profit distribution. The charging order, in most states, is the "exclusive remedy" a creditor has if the creditor wants to satisfy a judgment with your LLC assets unless the creditor's attorney can pierce the LLC veil. So, a critical thing is what the charging order statute says in the state the lawsuit is. Nevada's is solid.
There are a bunch of nuances with this area of the law. One question I'll answer now is that it does not make sense for someone who lives outside of Nevada to get a Nevada LLC. In all likelihood, if you live and are sued in California, CA's law will apply to the lawsuit and charging order regardless of whether you have a Nevada, LLC or not.
Most of the noise in the asset protection area is pure crap, so be careful with "YouTube hero" Charlatans. The law gives plenty of ammo to creditors to take you down if you screw around with this stuff.
TL;DR version: you're screwed Ryan Eagle...
inb4 mont7071
inb4 aaronklaw
Please do not PM me looking for free advice. I won't respond...
When I form entities I have almost exclusively used LLC's so I'm trying to understand why someone would use an S-Corp when LLC's provide better protection, pass-through income, and the tax advantages that come with it.
