What Does LLC Stand For? Everything You Need To Know
What does LLC stand for? LLC is the abbreviation for Limited Liability Company, one of four structures that businesses can formally organize and register as in the United States. LLCs provide important legal protections for individual business owners and partnerships, shielding them from personal liability from debts and, in many instances, court-imposed settlements incurred by the business. If you are forming a business, it is essential to understand the answer to the question, “What does LLC stand for?”
An LLC provides the advantages of a corporation with the functional agility and tax benefits of a partnership. Among LLC signature features:
- LLC owners are referred to as members. There are few restrictions on who, or what can be defined as LLC members. An unlimited number of individuals, corporations, other LLCs, foreign entities, can all be members of a specific LLC.
- Among the biggest advantages of forming an LLC is implied in its name – limited liability. An LLC’s members’ personal assets are usually exempt if the business incurs debt or is sued. That “limited” protection from liability does not extend to members if an LLC or its employees engages in illegal activities or is grossly negligent.
- Like a fully vested corporation – abbreviated as Corp. – an LLC can formally elect a president and board of directors and make decisions in board meetings. Or, an LLC can opt not to elect officers but appoint them and not to stage meetings. In fact, an LLC could, technically, be an LLC forming an LLC to serve as a subsidiary LLC or one individual could be the sole owner/member or an unlimited number of LLCs.
- LLCs can choose not to directly pay taxes on net profits. Its members pay taxes on income derived from the LLC on their personal tax returns. This is referred to as the LLC’s “pass through” benefit.
- LLCs can also opt to operate under a corporate structure in which net profits can be taxed separately from members’ income. The advantage here is the IRS’s corporate tax rates are generally lower than personal income tax rates.
- To avoid double taxation, an LLC can elect to be taxed as a partnership and company profits are passed on to the members and taxed once on their individual tax forms, and this is called pass through taxation.
- LLCs offer the capacity for a small business to evolve into other operational structures should they grow, and their expanding needs foster the need for change. Conversely, a fully vested corporation – abbreviated as Corp. – can “downsize” into an LLC should that operational infrastructure be more suitable to changing circumstances.
Different Types of LLCs
The different types of LLCs include:
- Single-Member: Single-member LLC owners can file taxes as a “disregarded entity” or a corporation. Under a disregarded entity, a separate LLC tax return is not required, and its income is reported on members’ 1040 and taxed as personal income.
- Partnership Corporation: Multiple-member LLCs can choose be an incorporated partnership for tax purposes. As with single-member disregarded entities, a partnership is a pass-through, meaning members pay taxes on its profits on their personal returns.
- C Corporation: If an LLC has more than one member, it must file separate federal and state tax returns as a “C Corporation.” In a C Corp., profits remain in the corporation and taxed at corporate rates.
- S Corporation: In an S Corporation, LLC income is allotted to individual members as “pro-rata shares” under Schedule K-1 on individual member's Form 1040.
Is LLC Right for You?
Before you begin the process of formally incorporating a business, it is important to determine if forming an LLC is the right choice for your business. While you can form an LLC on your own, there are many potential pitfalls that make consulting with attorneys who are specialists in small business law in specific states a cost-effective investment.
Upcounsel.com provides a comprehensive listing of LLC documents and provides a directory attorneys who are practitioners in distinct fields of business law with advice on such matters as what to do after forming an LLC.
If you have questions about LLCs, you can post them on 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.