One significant advantage of organizing a business as a limited liability company is the flexibility it affords. A single-member LLC can be taxed as a sole proprietorship, a multi-member LLC can be taxed as a partnership, and both single-member and multi-member LLCs can be taxed as a corporation (either S-corp or C-corp). An LLC also offers the members flexibility in how they pay themselves, which depends on the tax classification that is chosen.

The member of a single-member LLC can pay himself or herself at any time, which means writing a check or transferring funds from the business account to the member's personal account as an owner's draw. For income tax purposes, all the income generated by the single-member LLC is reported on the member's personal tax return. For purposes of employment tax and some excise taxes, however, a single-member LLC is treated as a separate entity. Estimated taxes and self-employment taxes on the business profits for the year must be paid.

Depending on whether the multi-member LLC is classified for tax purposes as a partnership or a corporation, the members can take draws, distributions, guaranteed payments, dividends and/or salaries. These are more complex issues to consider in multi-member LLCs. The company's operating agreement should specify the details of how the members are compensated, how often, how profits are distributed, and other nuances of member compensation. Members' compensation, in whatever form, can be adjusted based on how well the business is performing and how much money should be reinvested in the business.

Do not hesitate to involve a tax professional who understands partnership and corporate tax to help balance competing interests and determine what is best for your particular business arrangement.