LLC is an acronym that stands for Limited Liability Company.
A limited liability company is one of the newest business entity structures enacted by state law.
It combines the best aspects of the Corporation entity structure and the Partnership entity structure.
Like a corporation it has the advantage of liability protection, and it has tax benefits like that of a partnership.
The protection a LLC provides is called limited liability.
Although there are formalities that must be kept in order to take advantage of limited liability, in most cases LLC owners are protected from personal liability for the debts and obligations of the company.
Meaning the personal assets of the individuals, such as their house, car, bank accounts, etc are not in jeopardy of being taken through a judgment of the court, if the company should get sued.
There are a few areas of business that one should be aware of when intending to take advantage of limited liability.
For reasons such as co-mingling business and personal funds, a company may lose liability protection through what is called piercing the corporate veil.
Minor exclusions may allow a court to disregard your company as a separate legal entity, such as not electing officers, not holding annual meetings or not keeping minutes in your record book.
By default the LLC's profits and losses are reported on the individual owners' personal tax returns.
Unlike a corporation the company itself is never taxed (pass-through taxation).
Even if profits are left in the company's bank account, taxes must be paid on that money as well.
If there is more than one owner, the profits must be divided according to a written arrangement between members called an operating agreement.
Another benefit of an LLC is being able to decide how it will be taxed; by the filing of some simple paperwork it can elect to be taxed as a C Corporation or an S Corporation.
This may benefit certain companies according to their requirements.
LLC's have become very popular with small business owners nationwide because of the many benefits, simplicity of setup, and the small fees.
A LLC can legally be owned and operated by one person and there is no limit as to how many owners (members) can be involved in the company.
A Limited Liability Company is simply a business entity structure that makes it easier for an individual or individuals to start businesses of their own and still be protected personally.