A Limited Liability Company (LLC) is a business structure that combines features of
corporations and
partnerships. It is a relatively new and very popular business structure.
The chief characteristics of an LLC are:
- Like a corporation, an LLC is a business entity; it is a separate legal
entity from
its owners.
- Like a corporation, the personal liability of owners can be limited. This
allows
the owners to protect their personal assets from debts and liabilities of the business.
- Like sole proprietorships and general partnerships, the LLC can be taxed as a
pass-through
entity. The profits and losses of the LLC are reported on the personal income
taxes of
the owners and corporate taxes are paid at personal income tax rates.
- An LLC offers tax flexibility. It is the only structure that may elect with
the IRS
to be treated as a pass-through entity, as an S-Corporation, or as a C-Corporation. This
flexibility
helps your business save on taxes when it is just starting out and as it grows.
- LLCs are more flexible and easier to run than corporations. The LLC can
usually
dictate in its Operating Agreement how it will be run. It is a good idea, at minimum, to
hold an
annual meeting.
Quick Facts About LLCs
- LLC stands for Limited Liability Company.
- LLCs can have one or many owners which are called members.
-
LLCs can be managed by its members or it can managed by
managers
which the members elect.
-
Most LLCs start with pass-through taxation, then elect to be taxed as
an S-Corp
then a C-Corp as they grow.
-
An LLC is formed under state government. It is formed by filing
Articles of
Organization or Articles of Formation. Forming the LLC in the state where you reside and
do
business is usually the most economical.
-
An LLC is governed by its Operating Agreement. This document defines
how the
LLC will be run.
-
An LLC may be required to file an annual report with the state
government and
pay an annual state fee or franchise tax.
Types of LLCs
Because LLCs are formed under state law, statutory code dictates the types of LLCs that may be
created,
the protections they offer, and how they should be run. Some of the special types of LLCs
are:
-
Many states offer Professional Limited Liability Companies (PLLCs) intended
for
legal, healthcare, and other licensed professionals.
-
A Series LLC is a single LLC with several series of assets. The goal in
this
structure is to have one governing LLC overseeing several compartmentalized assets such as
real
estate properties.
-
Usually an LLC is a for-profit business, but some states also offer non-profit
LLCs.
Continue reading "Benefits of an LLC"
