\u201cLLC\u201d is a term you may often see as part of a company\u2019s 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. <\/p>\n\n\n\n
If you\u2019re 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.<\/p>\n\n\n\n
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. <\/p>\n\n\n\n
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<\/a>. Members can be individuals, corporations, other LLCs, and even foreign individuals and business entities, making it an extremely flexible option regardless of your circumstances.<\/p>\n\n\n\n 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\u2019s fastest-growing business designation type, with more than 2.4 million US businesses identifying themselves as limited liability companies nowadays.<\/p>\n\n\n\n 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.<\/p>\n\n\n\n A limited liability company, by definition, protects its owners from being held personally liable for the company\u2019s debts. In other words, if a creditor goes after the LLC\u2019s 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\u2019t 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. <\/p>\n\n\n\n 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. <\/p>\n\n\n\n Let\u2019s 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.<\/p>\n\n\n\n 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.<\/p>\n\n\n\n As far as maintenance goes, corporations need to organize annual shareholder meetings to maintain their status. On the other hand, LLCs aren\u2019t required to hold annual meetings, keep minutes, or even have a board of directors.<\/p>\n\n\n\n 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\u2019 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.<\/p>\n\n\n\n Creating an LLC or a corporation lets you make the most of liability protection from the company\u2019s 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.<\/p>\n\n\n\n When two or more people decide to go into business together, they don\u2019t 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. <\/p>\n\n\n\n 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\u2019s 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. <\/p>\n\n\n\n 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\u2019s 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.<\/p>\n\n\n\n Should you decide to form an LLC after comparing this business structure with corporations and partnerships, note that you\u2019ll be presented with two options; you can either form an LLC yourself or hire an LLC service company<\/a> to help you with the procedure. Additionally, you can also consult with a lawyer or an online legal service company<\/a> if you need help with any legal matters. <\/p>\n\n\n\n No matter which approach you decide to opt for, you\u2019ll need to take a few simple steps:<\/p>\n\n\n\n \u201cLLC\u201d is a term you may often see as part …<\/p>\nLLC vs. Corporation<\/strong><\/h2>\n\n\n\n
LLC vs. Partnership<\/strong><\/h2>\n\n\n\n
Forming an LLC<\/strong><\/h2>\n\n\n\n
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