What is an LLC?

A guide to an LLC for dummies may sound rather flippant, but there is no shame in not knowing all the ins and outs of a limited liability company or how one may be formed. Such a guide may be of great help in understanding the basics of an LLC.

A limited liability company is a type of business entity that combines the legal protections of a corporation with the flexibility and taxation advantages of a sole proprietorship or partnership. For this reason, it is most popular with small business owners who do not want to deal with the complexities of a corporate structure and who will benefit the most from the tax savings it offers.

What are the Advantages of an LLC?

LLCs offer many advantages to a business owner, such as:

*Limited liability protection.* This means that your personal assets cannot be seized to pay for business-related debts or legal rulings. Contrast this to a limited partnership, where the partners will have a personal risk from company-related liabilities.

*Business liability protection.* Having an LLC means creditors cannot liquidate your business or sue you personally to gain legal satisfaction.

*Lack of ownership restrictions.* There is no limit on owners with an LLC, and even other LLCs, corporations, and other business entities may own an LLC.

*Lack of management restrictions.* LLCs can be member-managed, meaning that the members manage the company, or they can be manager-managed, meaning that members cede management responsibilities to managers. Contrast this to corporations, where a specific structure of shareholders, directors, and officers must be followed.

*Tax flexibility.* If you own an LLC, you can choose how you wish to be taxed, including being taxed as a corporation.

*Pass-through taxation.* This means the profits and losses of your business will be passed through to your personal tax return and will not be taxed at the business level, thus, avoiding double-taxation. This also means that you will only have to file one tax return.

*Profit distribution flexibility.* Profits and losses can be distributed among members in almost any way that you choose. This distribution does not have to be done proportionally, as in a corporation.

*Less formalities and paperwork.* LLCs have almost no requirements when it comes to annual meetings and paperwork. Corporations, on the other hand, must file paperwork with the state regularly and are required to hold board of director meetings at regular intervals.

*Low formation costs.* Establishing an LLC may only cost you a few hundred dollars in filing fees, depending on the state you are in. There are also legal services online that can help fill out the proper paperwork.

Tips for Naming Your LLC

The first decision you will have to make when forming your LLC is what name to give it. This choice is of the utmost importance and could very well make or break your company. Some tips for choosing an effective name include:

*Be distinct.* Don’t try to rip off a well-known business name. Calling your company FaceSpot, Mal-Mart, or Moogle is lazy, and the public will not be fooled.

*Be memorable.* Acronyms should be avoided—most people won’t take the time to discover what they mean. If you must shorten, try to use amalgams, like how Federal Express becomes Fedex. Contrary to popular belief, very long names can be quite memorable.

*Be approachable.* Your name should be easy to say and remember. A good test is to try it with first graders; if they cannot pronounce it or understand it, it is probably not a good name.

*Be meaningful.* This is not about describing your company, but capturing the essence of your company. For instance, Google implies vastness, Yahoo! implies excitement, and Apple implies freshness. None of these names mention computers or technology.

*Be bold.* Amazon might not seem like the most obvious choice for an internet superstore, but it is much more memorable than Stuff Store or Net Shop.

*Be eternal.* LLCs do not have an expiration date, so why should your company’s name? If your company is successful, tying its name to a time period or trend will eventually put it out of date, like Twentieth Century Fox.

*Be expansive.* Similarly, you may not want to limit yourself to a single geographic location. If your company is called Miami Burgers, it may have difficulty expanding into other markets.

There are many other considerations one must make when deciding if they wish to form an LLC, but even these few should give one much to think about. If you need more help than this guide to an LLC for dummies can provide, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5-percent of lawyers. 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, Menlo Ventures, and Airbnb.