What is an LLC? Limited Liability Companies Explained

What is an LLC? Limited Liability Companies Explained

What is an LLC? It stands for limited liability company. The limited liability part means that the LLC owners, which are called the members. The LLC members are not going to be personally responsible or personally liable for the LLC’s debts or liabilities. So that’s where that limited liability part comes in, is it limits the liability to the members themselves. If the LLC is sued, the members don’t risk losing their assets in that lawsuit. That is why it is important to study carefully by reading llc service reviews before getting it.

An LLC is a business entity that is formed and recognized at a state level. In other words, it’s the state, not the federal government, not any local government, the state government that you will deal with to form and maintain your LLC. And then, all of the laws of the state where the LLC is formed will apply to that LLC.

Protect Small Businesses

entrepreneur open businessBefore then, most businesses were either structured as corporations, where the shareholders are the owners, and a board of directors runs the corporation. There’s double taxation because the corporation has to pay its corporate taxes. Things were either formed as corporations or as partnerships where there are one or more people involved.

The partners manage and run the business but are personally liable for all of the debts and liabilities of the partnership itself. But there is no kind of corporate tax; the partners are taxed at the individual level for the partnership income. So, most things were either partnerships or corporations. Businesses are clamoring for some new way to combine the two worlds and have the best of both.

Simple Business Structures

planning structure organizationLLC wanted the management and tax ease of the partnership, but the liability protection benefits that the corporation gave. Thus the LLC was born, and then eventually, the IRS got on board. Compared to corporations, in particular, LLCs are relatively easy to form and maintain. It is a straightforward business structure. The structure of an LLC can be flexible, and in most states, there are minimal requirements as far as ongoing compliance and regular filings. It varies from state to state because each state has its laws regarding LLCs. Still, for the most part, and especially compared to corporations, LLC members can freely change the management tax structure, really whatever portion of the LLC structure that they want to.

How is an LLC formed?

LLCs are established by filing a document. It is typically called certificate of formation, depending on the state. You would file it with the secretary of state in the state where you want to form the LLC. In many states, the LLC officially exists as soon as the articles of the organization are filed.