A limited liability company, or LLC, is easiest described as being a mixture of a corporation and a partnership. To put it simply, an LLC gives you many of the benefits of a corporate structure without all of the formalities usually associated with a corporation.
The owners of an LLC, who are called member, get treated like a partnership when it comes to taxes. It passes through income taxes directly to its members, so the LLC never pays income taxes itself, unlike a corporation.
An LLC never worries about the double-taxation problem that a corporation faces. To simplify this, because the tax obligation is put on only the owners, income tax is paid just one time. However, an LLC must still pay state (assuming there is any) and federal payroll taxes.
At the time of LLC formation, a decision is made about how to handle income taxes. You can handle income taxes as if you were a sole proprietor, a C corporation, or an S corporation. The great thing about an LLC is that you get to decide how to handle paying taxes.
If the LLC is set up correctly, and personal and business happenings are kept completely separate, the owners are afforded personal liability protection. This potential protection is one of the biggest reasons to form an LLC instead of running a business as a sole proprietor. You should also consider that a company earns more reverence when it has a formal structure, such as a limited liability company.
Forming LLC is performed by a person who does not necessarily have to be a member. There are actually several very good online companies that will create your LLC for a very nominal cost, which means you are assured that the structure is properly set up.
Typically, a member’s monetary liability is limited to the amount of money contributed by that member. When you are operating as a limited liability company, you can bring in multiple partners, who can either be actively involved in the company, or serve as silent investors.
While an LLC is similar in structure to a corporation, it offers its owners more flexibility. Starting an LLC with an online incorporation services company works best smaller companies in which the number of owners is limited.
The limited liability company is a relatively new form of business entity, at least in the US. As a matter of fact, as early as 1986, LLCs were only allowed in two states. Today, the limited liability company is recognized in every state.
Tags: form an llc, llc formation, starting an llc
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