1. What Is an LLC (Limited Liability Company)?
2. Advantages of Starting an LLC

Understanding what is an LLC company is important as you begin to consider possible business structures for a new company. There are a number of possible structures for new business owners to select, including common ones such as:

It's important to gain a thorough understanding of potential structures as well as the advantages and disadvantages of each to make an informed decision about which type of business is best for your new company.

What Is an LLC (Limited Liability Company)?

In simple terms, the LLC, or limited liability company, business structure is the simplest of the available structures from which you can choose. This business structure is also more flexible than those of the C-corporation and S-corporation. In addition to the simplicity and flexibility the LLC structure offers, it comes with a number of additional benefits, such as:

  • Pass-through taxation
  • Limited liability
  • Legal protection for the personal assets of company members
  • Increased legitimacy for your company

The term LLC stands for "limited liability company." This particular business structure has quickly become one of the most popular among small business owners, mostly because it is much simpler and more flexible than other structures, such as the corporation. Th limited liability company business structure combines certain benefits from the corporation, partnership, and sole proprietorship structures. For example, you'll enjoy the benefit of pass-through taxation, which is a hallmark of the partnership and sole proprietorship. In addition, the LLC structure provides owners with limited liability protection, similar to the level of protection found in corporations.

If you form your business as a limited liability company, it will effectively become its own separate legal entity. This means your company will have separate legal and financial obligations that cannot be tied to you as the owner. However, the company is still connected to your personal taxes.

Owners of an LLC are referred to as "members." A limited liability company can either have a single member or many. It's completely up to you and how you choose to set up your company. Establishing your business as an LLC is the easiest way to protect you and your personal assets in the event that legal action is taken against the company.

A limited liability company can have one or more members. An LLC that has only one member is referred to as a "single-member LLC." On the other hand, if your company has more than one member, it will be referred to as a "multiple-member LLC." In most cases, an LLC will be member-managed, meaning that the company's owners are directly involved in managing the daily operations of the business. In other cases, however, an LLC may be manager-managed. This means that a specific manager or managers have been appointed to handle the company's day-to-day operations.

Membership details and specific operating requirements should be outlined in a legally binding document called an LLC operating agreement. This internal company document is a legal agreement between all the company's members.

Choosing to form your company as an LLC provides a number of additional benefits, such as:

  • Protection from legal action taken against the company
  • Reducing the amount of required paperwork compared to other structures
  • Preventing "double-taxation"

Similar to a corporation, an LLC is considered a completely separate legal entity from its owners. This means your limited liability company is able to do a number of things in the company's own name, including:

  • Obtaining a tax identification number
  • Opening bank accounts
  • Conducting business

Advantages of Starting an LLC

There are a number of attractive advantages associated with limited liability companies. Some of these advantages include but are not limited to things such as:

  • Pass-through taxation
  • No residency requirements
  • Increased credibility for the company
  • Limited liability protection
  • Protection of owners' personal assets
  • No ownership restrictions
  • Versatile tax status options
  • Flexibility in the distribution of profits
  • Minimal compliance requirements
  • Flexible management structure options
  • Ability to obtain business loans

Pass-through taxation means the company is not required to file a corporate tax return with the IRS. Instead, the LLC members report their share of any profits they have received on their personal tax returns. This helps to avoid double-taxation scenarios. In addition, because LLCs don't have residency requirements, members are not required to be U.S. residents or permanent residents.

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