What Does LLC Mean? Everything You Need to Know About This Business Structure
ByMilica Milenkovic
September 24,2021
“LLC” is a term you may often see as part of a company’s official name. But have you ever wondered what exactly it stands for? The abbreviation LLC, along with its synonyms such as L.L.C., LC, L.C., limited company, limited liability co., and Ltd. liability company, indicates that a business is formed as a limited liability company rather than a sole proprietorship, partnership, corporation, or any other type of company.
If you’re on the hunt for the most suitable business structure for your newly established company or growing sole proprietorship and need answers to questions like what does LLC mean for a business and how does it work, keep reading this article.
Understanding the Concept of Limited Liability Companies
An LLC is a type of business entity you can form by filing the necessary paperwork in the state where you intend to conduct your business. The regulations surrounding limited liability companies may vary slightly from state to state.
Owners of an LLC are generally called members. An LLC can have just one owner (a single-member LLC) or many owners (a multiple-member LLC). While there are no differences in how single-member and multiple-member limited liability companies run their business, there is a difference in how these two LLC types are taxed. States impose few restrictions when it comes to LLC ownership. Members can be individuals, corporations, other LLCs, and even foreign individuals and business entities, making it an extremely flexible option regardless of your circumstances.
However, depending on the nature of your business, you may not be able to start an LLC. For example, an entity such as a bank or an insurance firm generally cannot be structured as a limited liability company. Despite these restrictions, though, the LLC is America’s fastest-growing business designation type, with more than 2.4 million US businesses identifying themselves as limited liability companies nowadays.
So, what is it that makes the concept of an LLC so appealing to American entrepreneurs? Not only is this business structure easy to set up, but also it provides a high level of flexibility and protection to its owners (members). In many cases, opting for an LCC represents the best of both worlds.
A limited liability company, by definition, protects its owners from being held personally liable for the company’s debts. In other words, if a creditor goes after the LLC’s assets, members may lose the money they invested in the company, but their personal assets - such as real estate, vehicles, bank accounts, heirlooms, and investments - won’t be at risk. However, if the company fails to meet legal and reporting requirements or fraud is detected, the corporate veil protecting the members may be lifted, allowing the creditors to go after them.
Another reason why many entrepreneurs opt for setting up an LLC is that this business type can choose not to pay federal taxes. Thanks to flow-through or pass-through taxation benefits, the profits and losses of an LLC can be passed through to members and listed on their individual tax returns. Alternatively, an LLC can choose a different classification and be taxed as a corporation.
Let’s take a look at some of the most apparent differences and similarities LLCs share with corporations and partnerships, the two business structure types limited liability companies are often confused with.
LLC vs. Corporation
The main difference between a limited liability company and a corporation is that corporations are owned by their shareholders, while an LLC is owned by one or more individuals or business entities. An LLC structure is governed by a written or oral operating agreement that identifies the way the company will be run, the way profits will be shared, and the roles of the members. However, limited liability companies are very flexible when it comes to the specifics of these agreements. On the contrary, corporations have a much more rigid structure of directors, officers, and shareholders.
As far as maintenance goes, corporations need to organize annual shareholder meetings to maintain their status. On the other hand, LLCs aren’t required to hold annual meetings, keep minutes, or even have a board of directors.
Taxation flexibility is among the main reasons why entrepreneurs choose to set up an LLC. Corporations pay corporate income tax on profits and their shareholders also pay income taxes on the profits they receive as dividends (C corps). In some cases, corporations may qualify to avoid double taxation by passing through the profits to shareholders’ personal tax returns (S corps). In contrast, limited liability companies are pass-through entities by default. However, their full range of taxation options includes the models of a sole proprietorship, partnership, S corporation, or C corporation.
Creating an LLC or a corporation lets you make the most of liability protection from the company’s obligations. While both business entity types offer the limited liability feature, corporations are favored by businesses that intend to seek outside investment, while an LLC is a smart choice for startups and small, owner-managed companies that need flexibility and want to avoid excessive corporate formality.
LLC vs. Partnership
When two or more people decide to go into business together, they don’t need to file any paperwork to officially form a business entity - the partnership is created automatically. On the contrary, forming an LLC requires filing articles of organization with the state the company plans to do business in and complying with any additional state filing rules.
In addition to these formation disparities, partnerships and LLCs also differ when it comes to personal liability. While corporations and limited liability companies offer liability protection from the business’s creditors to their shareholders/members, partnerships and sole proprietorships do not. In other words, partners can lose their personal assets if their company gets sued or falls into debt.
So, is an LLC similar to a partnership in any way? Yes, it is. Both limited liability companies and partnerships offer the benefits of pass-through taxation, which means that there are no corporate taxes to worry about, as business owners report the company’s profits and losses on their individual tax returns. Moreover, as far as tax benefits go, both LLCs and partnerships qualify for the 20% pass-through deduction according to the Tax Cuts and Jobs Act.
Forming an LLC
Should you decide to form an LLC after comparing this business structure with corporations and partnerships, note that you’ll be presented with two options; you can either form an LLC yourself or hire an LLC service company to help you with the procedure. Additionally, you can also consult with a lawyer or an online legal service company if you need help with any legal matters.
No matter which approach you decide to opt for, you’ll need to take a few simple steps:
- Choose your state of formation. This can be the state you live, but it must be the state you intend to conduct the business in.
- Pick a name for your business. Your LLC’s name must be unique in your state. We’ve already answered the question “what does LLC mean?” However, now we need to add that this abbreviation or any of its variations must form a part of your company’s formal name.
- Appoint a registered agent. A registered agent or an agent for service of process is a person or company that deals with all official correspondence such as legal summons and document filings for your company.
- File your LLC with the state. To officially create your limited liability company, you’ll need to file your formation document (usually referred to as articles of organization) with your Secretary of State’s office.
- Create an LLC operating agreement. Although this step isn’t officially required by most states, we still suggest you create an operating agreement for your LLC. This document can either be written or oral, and its main purpose is to outline the member roles and ownership structure of your company.
- Get an EIN. After completing your formal LLC creation, you’ll need to apply for an Employer Identification Number if you want to open a business bank account and hire employees.
Frequently Asked Questions
What is the downside to an LLC?
The most apparent disadvantages of an LLC are related to the potentially high formation and maintenance fees, the restrictions on limited liability protection that can result in the corporate veil falling, and inflexibility when it comes to changing the ownership structure.
What are the benefits of an LLC business?
The list of reasons why entrepreneurs decide to form their companies as LLCs is quite lengthy and includes liability protection, pass-through taxation, flexible membership and management, enhanced credibility, and limited compliance requirements. Some of these features can also be found in other business structure types, such as corporations or partnerships. However, LLCs are unique in that they offer the best of both worlds for small, owner-managed businesses.
How does an LLC protect you?
So, what does LLC mean and how can this business structure protect you? One of the most important benefits of a limited liability company is that it offers a liability shield to its owners. In other words, should a business get sued or fall into debt, its owners won’t be held liable and their personal assets won’t be at risk of collection.
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Not all businesses are built to last, and, occasionally, the time comes to close your LLC. If you were excited about starting it, this could be a stressful moment, but there are also those looking forward to ending things, as it can be the lesser of two evils.
Whatever the case may be, terminating a company requires some know-how. Luckily, if you were worried about how to dissolve an LLC, we’re here to go through the process with you and discuss the steps you need to take.
Several factors affect this process, including the laws of the state your company was registered and operated in, the number of LLC members, and whether there is an LLC Operating Agreement in place. Ultimately, there are different kinds of dissolutions for different kinds of LLCs, so you need to discern which category yours is in and what is required to complete the process.
Why Would You Need To Dissolve an LLC?
“Forgetting” to do so is, unfortunately, a common solution, especially for small businesses without employees or companies that were never actually used. This is certainly the path of least resistance in the short-term, but ending things properly has its benefits. For one, you won’t be surprised by a fine from a government agency or, even worse, a lawsuit for unpaid debt.
As an LLC owner, you are legally required to file annual reports, pay yearly fees, and minimum taxes. These will stack up, along with their late fees, until you take the necessary steps to dissolve an LLC.
Step 1: Voting on Dissolution
If you are the sole member of your LLC, then you skip this altogether. However, if you’re not the only founder, all LLC members must vote on dissolution before any action is taken. This is also where an LLC Operating Agreement could come in handy - provided you created one when establishing your LLC - as it usually sets the rules for voting on dissolution.
Step 2: Filing for Dissolution
This step could either come second or last, depending on your state’s rules. Nevertheless, you need to file the necessary papers, usually the Articles of Dissolution, with the relevant authority. It is usually the same place where you filed the papers to open your LLC in the first place, most likely the Secretary of State.
Keep in mind that these procedures and their accompanying fees vary between states, particularly if your LLC operated in more than one. While checking everything might sound troublesome, it’s a lot less so than the potential tax issues you might be ending up with otherwise.
Step 3: Filing for a Final Tax Return
Wondering how to dissolve an LLC with the IRS? Closing your company means you have to check in with the Internal Revenue Service (IRS), and your first order of business is filing a final tax return for your LLC.
For example, if you have employees, you must pay out their final wages and compensations, if any are owed. In addition, you have to make final federal tax deposits, report employment taxes, and all payments to contract owners exceeding $600.
Once you pay the taxes you owe, the last step is to cancel your EIN business number and close your IRS business account. To avoid any confusion, you can always check the IRS’s business closing checklist.
Step 4: Notify Your Creditors
Some guides on how to dissolve an LLC suggest this as the first step, simply because it is good business practice. In truth, it is entirely up to you when you’ll do it, so long as you get it done.
Notifying your creditors will help you keep all your finances in check. However, the rules here also differ according to state: You might be eligible for claims from companies you’ve never worked with. Some states require you to put up a notice within your local newspaper, too.
Still, whatever the state-specific rules, you must notify your creditors when dissolving an LLC. The memo you send should contain:
A notice that your LLC has been dissolved or is in the process of dissolution
The deadline for submitting their claims, the information they should include in them, as well as the mailing address to send them to
A statement barring claims not received by the deadline
Step 5: Dividing the Assets
The last step on our list does not apply to all LLCs, but it’s crucial when there are two or more LLC members. LLC assets are typically distributed depending on the percentage of ownership.
By Vladana Donevski ·
March 07,2023
Whether you’re starting a new business or looking to reconstruct an existing company, it’s crucial to determine which business type best suits your current needs. For most entrepreneurs, the choice comes down to maintenance costs and the level of liability protection they need. While an LLC offers liability protection and other superior benefits, a DBA is generally less costly to maintain. Still, the DBA vs. LLC comparison is a complex matter, and these two differences are just the tip of the iceberg. We’ve created this guide to help you understand how these two ways of conducting your business are different but also how they’re alike. Before we dive into discussing comparable features, here are in-depth definitions of both concepts:What is a DBA?A DBA or Doing Business As is also referred to as a fictitious business name, trade name, or assumed business name. It enables a business to operate under a name that differs from its legal name. For example, if a person called Alison Baker wants to operate her photography business as AB Photography, she’ll need to register a DBA. Of course, if she decides to use her legal name and go into business as “Alison Baker,” she won't have to obtain a DBA certificate. It’s a common misconception among first-time business owners that registering a DBA means formally creating a business structure with liability protection. The truth is that DBAs cannot be described as legal entities and don’t protect your personal assets against creditors and lawsuits.Essentially, a DBA is an official registration of your business name that you can use to run the company. Partnerships and sole proprietorships commonly use fictitious business names as these company structures are not separate legal entities from their owners. Entrepreneurs who run these types of businesses usually register a DBA name for branding and banking purposes. In other words, a “doing business as” registration lets you change the name of your business with minimum formality while also allowing you to open a business bank account and collect payments under the assumed name.Note that you can also register a DBA if you’ve previously formed an LLC and want your limited liability company to operate under a different name.Most states let you apply for a DBA license in the county or city where the business is located. While registration requirements may vary based on your specific location, there are some general rules and restrictions that apply nationwide. For example, sole proprietors and partnerships aren’t allowed to use designations such as “LLC,” “Corporation,” “Inc.,” or any other labels that would imply the business is anything other than a DBA.What is an LLC?An LLC or a limited liability company is a business structure type that lets a company operate as a separate and distinct legal entity from its owners. In other words, an LLC can enter into agreements and own property, ensuring that the company’s dealings are kept separate from those of its owners. While LLCs come with fewer restrictions than corporations, they require more formalities than DBAs. To form an LLC, business owners must file articles of organization with the secretary of state’s office, create an operating agreement, and appoint a registered agent. An LLC must be member-managed or manager-managed. A limited liability company’s members are the owners of the business, while a manager isn’t required to be a member.In addition to personal liability protection, another feature that made it to the top of the list of LLC advantages is tax flexibility. Unlike C corporations, an LLC is not a separate tax entity. Instead, it’s known as a “passed-through entity” where all profits and losses go through its members, who simply include this information on their personal tax returns.If you decide to form this type of business structure, you’ll be required to use your LLC’s legal name in all your affairs. These include filing government forms, dealing with customers and suppliers, and banking.DBA vs. LLC: What’s Right for Your New Business?Both DBAs and LLCs have several unique features that different business owners can interpret as advantages or disadvantages based on their individual needs. To help you decide whether to set up an LLC or a DBA, we’ve made a list of the most important factors each entrepreneur needs to take into account:Formation and MaintenanceBoth DBAs and LLCs are relatively simple to create. No matter which option you decide to go for, the steps include filing paperwork with the state and a filing fee. While formation procedures and fees for LLCs and DBAs may differ slightly from state to state, the costs of registering a DBA are generally lower than the ones facing business owners who are forming an LLC. Also, keep in mind that the most apparent bureaucratic difference between a DBA and an LLC is that the former requires filing renewal paperwork on an annual or biannual basis.After filing for a DBA, you’ll be able to carry on with business as usual. On the other hand, after forming an LLC, you’ll be required to treat the company as a separate entity by following corporate formalities and drawing a clear line between your personal and business assets; otherwise, you could lose your liability protection. Personal LiabilityUnlike a DBA, an LLC provides liability protection, which means that if someone sues a limited liability company, its owner cannot be held personally liable. In other words, operating an LLC, a separate legal entity, means that your personal assets such as your bank account, car, and home are protected from creditors. On the other hand, if you register a DBA, you’ll remain personally responsible for the obligations of your business, and your personal assets can be confiscated to cover any outstanding debts.Tax ConsiderationsWhen making the DBA vs. LLC comparison, tax advantages are of the utmost importance. If you choose to register a fictitious name, your business taxes and filing requirements won’t change. Here’s an example - if you owned a sole proprietorship before registering the DBA, the way you report your income and losses on your personal tax return remains the same. Should you decide to form an LLC, you’ll have new tax considerations to keep in mind. These include filings with your state tax agency and the IRS and an opportunity to opt for corporate tax treatment. Additionally, some states limited liability companies must pay franchise taxes.Trademark ProtectionIf you are still unsure whether you should choose a DBA or an LLC for your online business or any other company type, we suggest you evaluate both options by taking trademark protection into account. Considering that you don’t have to choose a unique name when registering for a DBA, it means that someone else could be using your business to sell goods or offer services. On the other hand, by forming an LLC, you can legally prohibit anyone operating in your state from using your company’s unique name. However, neither an LLC nor a DBA can protect your business’s name on the national level. To do so, you’ll have to file for registration with the US Trademark and Patent Office.BankingAs far as banking goes, both structures let owners make financial transactions under the names of their companies instead of their personal names.DBAs enable partnerships and sole proprietorships to deposit checks and accept payments made out in the business's name to any bank account associated with the DBA. Also, creating an LLC and opening a bank account under the same name enables you to accept checks made out to your company’s name.
By Milica Milenkovic ·
September 24,2021
Say you have a new company producing cellulite cream for arms. It’s generating buzz and getting great reviews from cosmetic sites and magazines. The only thing missing is a catchphrase that consumers immediately connect with the product.
Finally, after many sleepless nights, it dawns on you. The perfect catchphrase: “Dimply arms begone!” You call your commercial agency to launch the campaign, and word of mouth will do the rest. But in order to grow your business, you need to protect your intellectual property. That said, if you’re trying to figure out how to copyright a phrase, you’re wasting your time. Phrases cannot be copyrighted; they need to be trademarked.
Coin a Phrase
Most of today’s products and creative works are protected by law. So if you’re in the process of opening an LLC, for instance, consider employing some of the top LLC services, which check whether the name you choose for your company is being used by anyone else.
The next step is coining that perfect catchphrase. These short phrases are immediately distinctive and often live in the present. Many companies use similar catchphrases as a tool for brand recognition. They are easy to remember and serve as an effective advertising method. As such, these valuable taglines are protected under intellectual property laws, which brings us to the difference between trademark and copyright.
Should I Trademark It or Copyright It?
A trademark is a word, phrase, symbol, or design that distinguishes one company's goods from its competitors.
A service mark is similar, except it distinguishes the company’s service from others. For the sake of simplicity, they are often bundled together under trademark.
Trademarks don’t expire. Similarly, trademark registration can also last forever as long as you file specific papers and pay the required fees.
So, what does a copyright mean then? You use copyright to protect creative content that’s either been written down or recorded. However, copyright laws do not protect ideas, titles, slogans, or phrases. So don’t waste any more time trying to understand how to copyright a phrase. Simply trademark it.
Here, it’s also important to make the slogan vs. tagline comparison. While slogans focus on the company or a particular product, taglines capture the spirit of the brand.
For example, Joe McEnroe trademarked the famous phrase “You cannot be serious” after a heated disagreement with the umpire at Wimbledon in 1981. In 2002, he used the phrase as the title for his autobiography.
Meanwhile, Adidas International Marketing trademarked “Impossible is Nothing” for the company’s line of sports clothes and shoes.
Saving the Trademark
There are many ways to protect a trademark. If your company uses a trademark in commerce, it falls under the “common law” trademark. The great thing about it is it’s easy to obtain this form of trademark protection along with the ™ symbol. But you have to keep in mind that the “common law” trademark is only valid in a specific geographic location, usually local. Another drawback is that you have to prove you are the original owner of the trademark who regularly uses it. This may be a nightmare if a trademark dispute reaches the courts.
The other way of protecting a trademark is with trademark registrations through a state agency or, on a federal level, with the United States Patent and Trademark Office. We recommend the latter. When it comes to the trademark vs. registered comparison, it’s really a no-brainer - the best thing is to have both.
There are many benefits to having USPTO protection. This way, your trademark is protected on a national level, with an ® symbol. Your trademark is stored in the USPTO list, so others may be made aware of it. But the most important benefit is that you have the ability to sue for possible infringement. Infringing on someone else's trademark is a serious issue, be it a phrase or a logo design. Just keep in mind you can’t copyright a logo either; you can only trademark it. Recently Fintech startup Current accused Facebook of stealing its logo for the new cryptocurrency project. In order to avoid these unpleasantries, make sure you use the best logo makers.
How To Trademark a Slogan or Phrase
Once you’ve decided to trademark your phrase with the USPTO, check the agency’s database to see if anyone else is using the same phrase.
Then make sure you’re following the USPTO trademark rules (and catchphrase rules). Check if your phrase is different and unique enough from other trademarked phrases. Make sure you use your phrase in conjunction with the sale of goods or services. That way, you may trademark phrases for usage in commercial purposes. Next, do a trademark definition. Your trademark shouldn’t sound generic and explanatory or use familiar business or industry-specific terms.
An additional but beneficial step would be to contact the trademark attorney. That way, you can make sure the phrase you want to use can be trademarked and if it follows all USPTO trademark rules.
Another important legal requirement for setting up a business involves hiring a registered agent. This can be either a company or an individual who will receive service of process if you’re ever part of a legal action. Here are some of the very best registered agent service options in 2021.
After you define a trademark, you’ll have to apply through the USPTO’s Trademark Electronic Application System. The application fee is between $250 and $350, depending on the type of goods or services. These fees have to be paid individually for all types of goods and services, even when using the same phrase. This can become a costly affair for some businesses, especially since you can’t get a refund if your trademark application is refused.
The process of validating your application may take six to eight months. The agency’s lawyers will contact you with their decision or request additional information.
If your application ends up abandoned during this period, you may have to pay a $100 petition fee to proceed with the application process. Keep these costs in mind when you decide to trademark a phrase.
If your application is accepted, you’ll have to file Section 8 documents on the fifth and tenth year of using the trademark. In these renewal documents, you’ll specify if you’re using the trademark in commerce for the filled goods or services.
After your phrase is trademarked, keep an eye on the USPTO’s Trademark Electronic Search System to see if anyone is using your trademark and then take appropriate legal action.
Is It Worth the Trouble?
Trademark slogans have become a powerful and proven ally in the advertising business. Application fees can be costly for small businesses trying to trademark a company slogan. But those that have the financial muscle can benefit a great deal from trademarking their intellectual property. Of course, you’ll never have to ask the question: how much does it cost to copyright a phrase as copyright laws don’t cover short phrases.
By Nemanja Vasiljevic ·
March 22,2023
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