What Is an LLC Considered: Everything You Need to Know
An LLC provides the owner with certain liability protections in the event that the company faces certain legal and financial obligations.3 min read
Understanding what is an LLC considered is important when you're considering possible business structures for your new company. An LLC, or limited liability company, is a specific type of structure that provides you, as the business owner, with certain liability protections in the event that your company faces certain legal and financial obligations.
What Is an LLC (Limited Liability Company)?
In simple terms, the limited liability company business structure is the least complicated of your available options. An LLC can be quite flexible, unlike C-corporations and S-corporations. There are also a few benefits associated with structuring your business as a limited liability company, including:
- Pass-through taxation
- Limited liability taxation
- Certain legal protection for personal assets
- Increased legibility for your company
The LLC business structure has quickly become one of the most popular business types for small business owners. This is because running an LLC is typically much easier and more flexible than running a corporation. An LLC is a corporate structure that provides members with certain protections. Specifically, members are not held personally responsible for the company's legal or financial obligations.
The limited liability company structure provides a combination of benefits from the partnership and sole proprietorship and corporation structures. For example, the LLC's pass-through taxation feature draws from a similar feature found in a partnership or sole proprietorship. Likewise, the LLC structure provides the limited liability protections that are commonly found in the corporation business structure.
Limited liability companies are considered to be completely separate legal entities from their owners. This means that the LLC has separate legal and financial obligations for which its members cannot be held accountable. However, this business structure is still tied to the owner's personal taxes.
LLC owners are typically referred to as members. The company can have just one member or many. It's entirely up to how you want to structure your business. Because an LLC is considered to be its own legal entity, the company is able to do a number of things under its own name, such as:
- Obtaining a tax identification number
- Opening bank accounts
- Conducting business
Advantages of Starting an LLC
There are a number of attractive advantages associated with forming your business as a limited liability company. These advantages include, but are not necessarily limited to:
- Pass-through taxation
- No residency requirements
- Increased credibility for your company
- Limited liability protection
- No ownership restrictions
- Versatility of tax status options
- Flexibility of profit distribution options
- Simple compliance requirements
LLCs are not required to file corporate tax returns. Instead, the LLC members will report their corporate earnings and losses on their individual tax returns. This is known as "pass-through taxation" and eliminates the double taxation scenarios that are commonly found in corporations.
In many cases, limited liability company members are not required to be permanent residents or U.S. residents. In addition, potential investors, partners, and vendors are more likely to want to do business with you if you've taken the time and effort required to establish your company as an LLC.
Limited liability companies owe their popularity among small business owners largely to the fact that the structure removes the responsibility for the company's legal and financial obligations from the owners. This means the company itself, not the company's members, is held liable for any debts or legal action that may be taken against it. Member liability is limited only to any personal investments that have contributed to the business. This provides members and their assets with a measure of liability protection because they are legally separate from the company.
If your company were ever to file for bankruptcy, for example, the LLC's members will typically not be held liable for paying the company's debts with their personal assets. If the company's assets are not sufficient to cover its debts, creditors are unable to target the owner's assets for payment. This is because their debt was established with the LLC and not its owners.
Because LLCs are not subject to residency restrictions, foreign individuals are allowed to claim ownership in the business if you choose to let them. This also means that another business entity can become a member of an LLC and can even be the company's only member. If an LLC has a single member that is not an individual, however, that LLC will be treated as a partnership or multiple-member LLC for tax purposes.
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