How does Chesters' status as a limited liability company affect its federal income tax obligations?

According to Chesters's 2025 Franchise Disclosure Document, as a limited liability company (LLC) for federal income tax purposes, Chesters has elected under Section 701 of the Internal Revenue Code (IRC) to have its income or loss taxed directly to its members. This means that Chesters itself does not pay federal income taxes at the corporate level. Instead, the company's income and losses are passed through to its members, who then report these on their individual income tax returns.

This structure avoids the double taxation that can occur with corporations, where profits are taxed at the corporate level and again when distributed to shareholders. For a prospective Chesters franchisee, this information is relevant because it clarifies that Chesters, as the franchisor, does not have its own federal income tax liability; the tax obligations fall on its members.

Chesters also assesses its uncertain tax positions for potential issues that could arise during an IRS examination. For the years ending December 31, 2024 and 2023, Chesters determined that it had no uncertain tax positions that it would be unable to substantiate. The company has filed tax returns through 2023. This indicates that Chesters is proactive in managing its tax responsibilities and ensuring compliance with tax laws.