The business structure know as an LLC can be best considered to be a composition of a corporation and a partnership. Simply explained, an LLC give a business many of the benefits of a corporate structure without all of the protocols usually associated with a corporation.
The owners of an LLC, who are called member, get looked upon as a partnership for tax purposes. It passes through taxes on income directly to its members, so the LLC never pays income taxes itself, unlike a corporation.
An LLC does not suffer from the double-taxation issue that a corporation faces. In other words, because the tax obligation is put on only the owners, income tax is paid just one time. However, an LLC is still obligated to 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 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 you completely separate business and personal happenings, the owners are afforded personal liability protection. This potential protection is one of the biggest reasons to form an LLC versus running a business as a sole proprietor. You should also consider that a business earns more respect when it has a formal business structure, such as an LLC.
Forming an LLC is done by someone who does not necessarily have to be an owner. You can actually use an online company to form your LLC for a very reasonable cost, which means you are assured that the structure is set up correctly.
Typically, a member’s monetary 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.
An LLC is a business structure that is very very much like a corporation, but offers more flexibility to its members. Incorporate LLC works best smaller companies in which there doesn’t have to be too many owners.
In the US, the LLC is a fairly new business entity. As a matter of fact, as early as 1986, limited liability companies were only permitted in two states. Today, you can form an LLC in every state.