What Does LLC Mean After a Name?: Everything to Know
The abbreviation LLC stands for limited liability company. It's one of several entities you can choose for your business.3 min read
What does LLC mean after a name? Learn more about the meaning and history of a limited liability company, as well as its advantages and requirements.
The Meaning of LLC in a Company Name
The abbreviation LLC stands for limited liability company. It's one of several entities you can choose for your business. Like traditional corporations, an LLC separates the assets of the company from personal assets of its owners.
Rich features and ease of operation have made LLCs a popular structure for small businesses in the U.S.A. They offer the limited liability benefit of corporations and the operational flexibility of partnership firms.
Just like a corporation, an LLC is a distinct business entity, separate from its owners. It can open a bank account, enter into contracts, and conduct business, all under its own name.
Members of an LLC can't be held personally responsible for debts and liabilities of the company. Even if an LLC becomes bankrupt, its creditors can't force the members to repay the debts from their personal funds.
It doesn't matter whether it's a single-member LLC or a multi-member LLC, all types offer protection from business liabilities of the company without thrusting the rigid corporate rules upon you. There are no requirements like appointing directors, holding special meetings, and keeping extensive records.
LLCs are also flexible with respect to taxes. You can choose from several alternatives to create the most favorable tax plan for your business. By default, the company profits and losses pass through the personal tax returns of its owners, much like in the case of a partnership firm.
- In 1977, Wyoming became the first state to allow the forming of limited liability companies.
- In 1996, the Uniform Law Commission (ULC) approved the Uniform Limited Liability Company Act as a model LLC law across the United States.
- Most of the states did not adopt the proposed framework.
- The ULC amended the act several times between 2006 and 2013.
- Most of the states today have their own LLC law.
- In almost every state, the number of new LLC filings is higher than the number of corporate filings.
The owners of an LLC are called members. An LLC can have one, two, or more members. LLC members can include:
- Foreign entities
- Other LLCs
However, there are certain restrictions on LLC membership. Usually, an LLC cannot have banks and financial institutions as its members. Some states may impose additional restrictions.
Although members of an LLC enjoy limited liability, they may not get protection for frauds and other wrongful acts committed by themselves or their employees.
Basic Steps in LLC Formation
- Choose a unique name for your LLC.
- File Articles of Organization with the secretary of your state.
- Apply for an Employer Identification Number (EIN). You can do this online through the IRS website.
- Open a separate bank account for your LLC. For this, you will need the Certificate of Formation and the EIN.
- Make other financial arrangements, like getting business credit cards and small business loans.
- Obtain licenses and permits applicable to your industry and location.
Note that it's extremely important to keep the business transactions separate from your personal dealings. Failing to do this may disregard the LLC as a separate entity and make you personally liable for business liabilities and obligations.
- An LLC offers a flexible business structure.
- It's a separate business entity from its owners.
- It limits the liability of members and protects their personal assets against business debts and lawsuits.
- Owners of a multi-member LLC can include the company profits in their personal tax returns — like a partnership firm — or choose to file a separate tax return as a corporation.
- An LLC can get its own EIN. That way you don't have to disclose your Social Security number (SSN).
- An LLC is subject to annual filings.
- Some states may charge a franchise tax and other fees on LLCs.
- It may not be a suitable business structure if you intend to raise huge capital and funds from the market. Large investors prefer corporations over LLCs.
Although LLCs serve as a useful business entity for most small ventures, it's important to analyze its utility in each case. Consult a business lawyer to find out whether an LLC would be the right choice for you.
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