The business structure know as an LLC can be best considered to be a mixture of a corporation and a partnership. Simply explained, an LLC offers the best parts of a corporate structure but not all of the corporate protocols.
The multiple owners, called members, of an LLC get looked upon as a partnership when it comes to taxes. It is a pass-thru tax structure, so income taxes are paid by its owners, 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 does. In other words, due to the fact that the tax liability is put on only the owners, income tax is paid just one time. However, an LLC must still pay state (if applicable) and federal payroll taxes.
At the time of forming LLC, a decision is made about how you choose the tax treatment desired. You can be taxed like a sole proprietor, a C corporation, or an S corporation. The great thing about a limited liability company is that you get to decide how to handle paying taxes.
If the LLC is properly set up, and personal and business activities are completely separated, the owners are afforded personal liability protection. This potential protection is a big reason why people choose to form an LLC instead of operating as a sole proprietor. Also, a business earns more admiration when it has a formal business structure, such as an LLC.
Form a LLC is performed by someone 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, saving you from having to ensure everything is set up correctly.
A member’s financial liability is limited to the financial contribution made by that member. When you are operating as an LLC, you can bring in multiple partners, who can either be actively involved in the company, or just contribute money.
While an LLC is similar in structure to a corporation, it offers its owners more flexibility. Forming an LLC with an incorporating online company is most suitable for smaller companies in which there doesn’t have to be too many owners.
In the United States, the limited liability company is a relatively new business entity. As a matter of fact, as early as 1986, LLCs were only allowed in two states. Now, the LLC is recognized in every state.
