The business organization know as a limited liability company, or LLC, can be best considered to be a hybrid between a corporation and a partnership. To put it simply, an LLC give a business many of the benefits of a corporate structure without all of the corporate protocols.
The multiple owners, called members, of an LLC are looked upon as a partnership when it comes to taxes. 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 does not suffer from the double-taxation issue that a corporation faces. To simplify this, due to the fact that the tax obligation is put on only the owners, income tax is paid just one time. Though, a limited liability company must still pay state (if applicable) and federal payroll taxes.
At the time of forming an LLC, you choose how to handle income taxes. You have the choice to 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 properly set up, and you completely separate business and personal happenings, the owners can look forward to certain personal liability protection. This potential protection is one of the biggest reasons to form an LLC instead of operating as a sole proprietor. You should also consider that a business earns more reverence when it has a formal business structure, such as an LLC.
LLC formation is done by someone who does not necessarily need to be an owner. There are actually several very good online companies that will create your LLC for a very nominal cost, which means you are assured that everything is properly set up.
Typically, a member’s financial liability is limited to the amount of money contributed by that member. When you are operating as an LLC, you can bring in multiple partners, who can be active in the business, or serve as silent investors.
While a limited liability company is similar in structure to a corporation, it offers member more flexibility. Creating an LLC works best smaller companies in which there doesn’t have to be too many owners.
In the US, the limited liability company is a relatively new business entity. As early as 1986, you could create an LLC in only two states. Now, every state recognizes this business structure.