The business organization know as an LLC can be best described as being a composition of a partnership and a corporation. Simply explained, an LLC gives you many of the benefits of a corporate structure but not all of the formalities usually associated with a corporation.
The owners of an LLC, who are called member, get looked upon as a partnership for tax purposes. It passes through income taxes directly to its members, so the LLC never pays income taxes itself, unlike a corporation.
Because of this, an LLC never worries about the double-taxation problem that a corporate structure faces. In other words, because the tax obligation is passed on directly to the owners, income tax is paid just one time. Though, an LLC must still pay state (if applicable) and federal payroll taxes.
At the time of forming an LLC, a decision is made about how you choose the tax treatment desired. You can handle income taxes as if you were a sole proprietor, a C corporation, or an S corporation. The choice is yours.
Assuming that the LLC is set up correctly, and personal and business happenings are completely separated, the members are afforded personal liability protection. This is one of the biggest reasons to form an LLC instead of running a business as a sole proprietor. You should also consider that a business earns more admiration when it has a formal structure, such as an LLC.
LLC formation is done by a person who does not necessarily have to be a member. There are actually several very good online companies that will create your LLC for a very reasonable charge, saving you from having to ensure everything is properly set up.
Typically, a member’s monetary liability is limited to the amount of money contributed by that member. When you are operating as a limited liability company, you can bring in more than one partners, who can be active in the company, or serve as silent investors.
While an LLC is similar in structure to a corporation, it offers more flexibility to its members. Forming an LLC with an online incorporation company works best smaller companies in which there doesn’t have to be too many owners.
In the United States, the limited liability company is a fairly new business structure. As a matter of fact, as early as 1986, you could form an LLC in only two states. Now, you can form an LLC in every state.
