A limited liability company, or LLC, can be best described as being a hybrid between a corporation and a partnership. Simply explained, limited liability company gives you the good parts of a corporate structure but not all of the protocols usually associated with a corporation.
The multiple owners, called members, of an LLC are looked upon as a partnership for tax purposes. It passes through income taxes directly to its owners, so the LLC never pays income taxes itself, unlike a corporation.
Because of this, an LLC never worries about the double-taxation issue that a corporation faces. To simplify this, because the tax liability 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 form a LLC, you choose how you choose the tax treatment desired. You can be taxed like a sole proprietor, a C corporation, or an S corporation. The choice is yours.
If the LLC is properly set up, and personal and business activities are completely separated, the members are afforded personal liability protection. This is a big reason why people choose to form an LLC instead of operating as a sole proprietor. Also, a company generally earns more admiration when it has a formal business structure, such as a limited liability company.
Forming an LLC is performed by a person who does not necessarily need to be a member. There are actually several very reputable online companies that will form your LLC for a very reasonable cost, which means you are assured that everything is set up correctly.
A member’s financial liability is limited to the financial contribution made by that member. And an LLC’s structure allows you to bring in multiple partners, who can be active in the business, or serve as silent investors.
While an LLC is similar in structure to a corporation, it offers member more flexibility. Starting an LLC with an LLC online company works best a smaller business in which there doesn’t have to be too many owners.
The limited liability company is a relatively new type of business entity, at least in the US. As a matter of fact, as early as 1986, limited liability companies were only permitted in two states. Now, every state recognizes this business structure.
