The business organization know as an LLC is easiest described as being a composition of a partnership and a corporation. To put it simply, an LLC give a business the best parts of a corporate structure without all of the protocols usually associated with a corporation.

The owners of an LLC, who are called member, are treated like a partnership for tax purposes. The LLC passes through taxes on income directly to its owners, so, unlike a corporation, the LLC itself never pays taxes.

An LLC does not suffer from the double-taxation issue that a corporation faces. To simplify this, because the tax obligation is passed on directly to the owners, income tax is paid just one time. However, a limited liability company must still pay state (if applicable) and federal payroll taxes.

At the time of forming an LLC, a decision is made about how you choose the tax treatment desired. You have the choice to handle income taxes as if you were a sole proprietor, a C corporation, or an S corporation. The choice is yours.

Assuming that the LLC is set up correctly, and you completely separate business and personal happenings, the owners can look forward to certain personal liability protection. This potential protection is a big reason why people choose to form an LLC versus running a business as a sole proprietor. You should also consider that a business generally earns more respect when it has a formal structure, such as an LLC.

LLC incorporation is performed by someone who does not necessarily need to be a member. You can actually use an online company to form your LLC for a very nominal cost, which means you are assured that everything is set up correctly.

Typically, a member’s financial liability is limited to the financial contribution made by that member. And an LLC’s structure allows you to bring in multiple partners, who can either be actively involved in the company, or serve as silent investors.

While an LLC is similar in structure to a corporation, it allows more flexibility to its owners. Creating an LLC works best a smaller business in which the number of owners is limited.

In the United States, the LLC is a relatively new business structure. As early as 1986, you could create an LLC in only two states. Today, the limited liability company is recognized in every state.

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