LLC Examples

The bulk of entrepreneurs begin as sole proprietors.

Self-Employment and LLC Examples

Limited liabilities companies have many benefits. Many small-business owners that LLCs are easier for taxes, income tracking, lawsuits, and business write-offs.

Taxes and LLCs

LLCs do not pay taxes as entities. LLCs are "pass-through" structures, which means that taxes are sent instead to the members.

The owner(s) needs to pay all the taxes the LLC’s profits, and consequently, ought to make quarterly payments. The owner should pay normal income tax as well as self-employment tax.

Tracking Income

Ensure that all checks for the LLC are made out to the LLC’s name. For expenses, checks ought to be written from the LLC’s account.

It is important to track income for preparing the LLC’s profit and loss statement.

The owner is able to pay themselves anytime. The owner is able to just write a check from the LLC to themselves.

The two-tiered tracking method permits strong business accounting as well as unlimited payments to themselves or other LLC members. The company’s accounting ledger tracks all LLC expenses.

Business Write-offs

An LLC can write off many expenses that an individual can’t do so themselves.

However, the owner can’t write off their own car off their taxes. Rather, the LCC can own a car. The LLC can depreciate it yearly and therefore lower its reported net income. When the income passes through to the members, the car expense will already be deducted.

Lawsuits and Accidents

A self-employed person needs to work hard in order to build their own assets and those for their family. The LLC’s owner has no personal liability for the company’s mistakes.

Definition of Liability

Liability means being legally responsible for a matter.

Limited Liability Company

A Limited Liability Company (LLC) is a private legal entity in the U.S. that mixes corporate limited personal liability with partnership and sole proprietorship’s simplified taxation.

The LLC’s owners put the company’s profits and losses on their individual tax returns (“pass-through taxation”) instead of an LLC corporate tax return.

LLC owners are termed “members.” The LLC can be owned by just one person, two or more people, by a corporation, or by another LLC.

The LLC’s members are not held personally liable for the business’ obligations.

If the business can’t pay its obligations (rent, loan payments, business suppliers, etc.), creditors can only pursue the LLC’s assets.

The LLC’s members only risk losing the capital they have put into the business, protecting their personal assets (home, car, etc.).

Exceptions to Limitation of Liability

However, LLC members are not given total protection against liability. LLC members can be held personally liable just like corporate shareholders under certain circumstances.

LLC members can be held possible for causes including:

  • A member gives a personal guarantee for a business loan or debt.
  • A member directly and individually damages a person.
  • A member doesn’t submit taxes that were held from the employee’s wages.
  • A member purposely does an illegal, fraudulent, or reckless act that harms the LLC or another person.

An LLC’s Liability for Member’s Personal Debts

An LLC’s assets usually can’t be used by creditors for a member’s individual debts.

Depending on the state, potential creditor actions include:

  • Charging Order: A court orders the LLC to directly pay a creditor the member’s profits in order to satisfy a debt.
  • LLC Interest Foreclosure: A member’s interest in the LLC can be foreclosed upon to satisfy a personal debt with a creditor.
  • Order for Dissolution: A creditor can get a court order dissolving the LLC. The member’s income from the dissolution and sale of the company’s assets is sent to the creditor for the personal debt.

Single Member LLC Protection

A charging order’s purpose is to permit taking a member’s income while protecting the LLC’s other members.

There is no need for the charging order’s protection when the LLC is owned by just one member.

Some courts in various states have held single-member LLCs aren’t automatically protected by requiring Charging Order. Therefore, creditors can foreclose on a member’s interest in order to fulfill personal debts.

If you need help with forming an LLC or determining your LLC’s structure and strategies, you can post your legal need to UpCounsel’s marketplace. Upcounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.