What Is a Limited Liability Company (LLC)?
A. The LLC is a business entity that offers limited liability protection and pass-through taxation. As with corporations, the LLC legally exists as a separate entity from its owners. Therefore, the owners cannot typically be held personally responsible for the debts and liabilities of the LLC. The LLC allows for pass-through taxation, as its income is not taxed at the entity level; however, a tax return for the LLC must be completed. Any income or loss of the LLC as shown on this return is passed through to the owner(s). The owners, also called members, must then report the income or loss on their personal tax returns and pay any necessary tax.
Generally considered advantageous for small businesses, LLCs combine the limited personal liability one has when forming a corporation with the tax advantages one obtains if one forms as a partnership or sole proprietorship. In an LLC, profits and losses may be passed through the company to its members or, if desired, an LLC can be taxed like a corporation. LLCs do not issue stock and are not required to observe other corporate formalities. An owner of an LLC is referred to as a “Member” and the LLC is managed by appointed managers or members.
A limited liability company (LLC) provides the owners of the business the limited liability of a corporation with more flexibility in how to manage the day to day affairs of the company. The business can be operated like a corporation or a partnership. If the business owner elects to operate like a partnership it needs to be specified in the company’s contract between the owners and management. A Minnesota LLC can have one or more members and is governed by Chapter 322b. A professional firm can also use an LLC and the requirements are found in Chapter 319b. The name of the professional firm must be PLLC, PLC, or LLC. The types of professional firms authorized under Minn. Stat. Sec 319b.02 Subd. 19 include dentists, doctors, attorneys, pharmacists, engineers, accountants, architects, social workers, registered nurses and veterinians.
A limited liability company (LLC) is a form of business entity that is separate and distinct from a person, like a corporation. The LLC is often described hybrid between a corporation and a partnership (or sole proprietorship). It allows for the limited liability protection similar to that of a corporation (i.e., your risk is limited to the amount that is invested in the LLC, and personal assets beyond that are usually protected). It also allows for a more flexible setup and operating structure than a corporation while providing the pass-through taxation of a partnership (if a multimember LLC) or a sole proprietorship (if a single member LLC). One of the main advantages of an LLC over a Partnership or a Sole Proprietorship is the Limited Liability Protection.
of business structure that combines traits of both a sole-proprietorship and a corporation. An LLC is eligible for the pass-through taxation feature of a partnership or sole proprietorship, while at the same time limiting the liability of the owners, similar to a corporation. As the LLC is not considered a separate entity, the company does not pay taxes or take on losses. Instead, this is done by the owners as they have to report the business profits, or losses, on their personal income tax returns. However, just like corporations, members of an LLC are protected from personal liabilities, thus the name Limited Liability.
What Is a Limited Liability Company (LLC)?