A limited liability company, or LLC, is easiest considered to be a composition of a partnership and a corporation. Simply explained, an LLC offers many of the benefits of a corporate structure without all of the corporate formalities.
The multiple owners, called members, of an LLC are treated like a partnership when it comes to taxes. It is a pass-thru tax structure, so income taxes are paid by its member, so, unlike a corporation, the LLC itself never pays taxes.
An LLC never worries about the double-taxation problem that a corporate structure faces. In other words, due to the fact that the tax obligation is put on only the owners, income tax is paid just one time. Though, an LLC is still obligated to pay state (assuming there is any) and federal payroll taxes.
At the time of forming an LLC, you choose 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.
If the LLC is set up correctly, and you completely separate business and personal activities, the members can look forward to certain personal liability protection. This potential protection is a big reason why people choose to form an LLC versus operating as a sole proprietor. You should also consider that a company generally earns more reverence when it has a formal business structure, such as a limited liability company.
Forming a LLC is done by someone who does not necessarily need to be a member. There are actually several very good online companies that will create your LLC for a very reasonable cost, saving you from having to ensure the structure is properly set up.
A member’s monetary liability is limited to the amount of money contributed by that member. And an LLC’s structure allows you to bring in more than one partners, who can either be actively involved in the business, or serve as silent investors.
While a limited liability company is similar in structure to a corporation, it allows more flexibility to its owners. Creating an LLC with an incorporating online company is most suitable for smaller companies in which there doesn’t have to be too many owners.
The limited liability company is a fairly new form of business entity, at least in the US. As early as 1986, limited liability companies were only allowed in two states. Now, you can form an LLC in every state.
