What is an LLC?
An LLC lets you take advantage of the benefits of both the corporation and partnership business structures. LLCs also protect you from personal liability in most instances, your personal assets — like your vehicle, house, and savings accounts — won’t be at risk in case your LLC faces bankruptcy or lawsuits. A limited liability company, commonly referred to as an LLC, blends two business models together: corporations and sole proprietorships/partnerships. Similar to corporations, an LLC is a completely separate entity from you, the owner. This means you have limited liability, as the name of this business structure alludes to. With limited liability, your personal assets, such as your car, home, and personal savings, are protected if your company faces a lawsuit or bankruptcy. However, unlike a corporation, an LLC isn’t bound by strict rules and has more flexibility when it comes to being managed and taxed—similar to sole proprietorships and partnerships.
Limited Liability Company (LLC)
As we mentioned, an LLC integrates the structural models of both corporations and sole proprietorships/partnerships. They’re unique in that an LLC separates personal assets from business assets, which protects the owner, giving them more freedom and flexibility when it comes to choosing a tax structure and management plan.
- Ownership- LLC owners are called members. There can be single-member LLCs, LLCs owned by other corporations, or multiple members in charge of the LLC. There is no restriction to who can own an LLC, so foreign entities can participate as well.
- Formation- To form an LLC, an LLC Operating Agreement must be filled out, as well as all licenses, permits, and registrations required by the state they’re operating in. Additionally, the name of an LLC must be unique and cannot be in use in the state they are in. You can even form an LLC online using business creation services.
- Taxes- In the eyes of the IRS, an LLC isn’t a separate tax entity, so the business is not taxed. Instead, the federal government considers an LLC as a pass-through entity, requiring members (LLC owners) to pay through their personal income taxes. A benefit of an LLC is that members can choose the tax structure that meets their financial needs. This means they can be taxed as a corporation, partnership, or as part of the LLC’s member’s personal tax returns. Members can fill out IRS Tax Form 8832 to change filing status.
- Examples- YouTube, United States Postal Service, Chrysler are all examples of LLCs.