What is a limited liability company?
A limited liability company, commonly called an “LLC,” is a business structure that is similar to a corporation, but less formal. Business owners form LLCs to protect themselves from being personally liable for business debts. LLCs combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. As in a partnership or sole proprietorship, income “passes through” the LLC to the LLC owners, and the owners report the business’s income on their personal income tax returns. Unlike a corporation, the LLC itself is not a separate taxable entity. Like owners of a corporation, however, all LLC owners are protected from personal liability for business debts and claims — a feature known as “limited liability.” This means that if the business owes money or faces a lawsuit for some other reason, only the assets of the business itself are at risk. Creditors usually can’t reach the personal assets of the LLC owners, such as a house or car. (Howev
Just like a corporation, an LLC is a separate and distinct legal entity. The LLC can obtain a tax ID number, open a bank account and conduct business, all under its own name. The main advantage of an LLC is that its owners (known as members) are not personally liable for the debts and liabilities of the LLC. Let’s say your LLC gets sued and it has to file bankruptcy, then the owners are not required to pay the debt with their own personal money. If the LLC’s assets are not enough to cover the debts, the creditors can’t go after the officers, members or managers for recovery of the debt. For taxes, an LLC may be taxed either as a “pass-through” entity where the profits pass-through to the owners and the owners pay taxes at their individual tax rates or as a regular corporation.
A limited liability company, commonly called an “LLC,” is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. Like owners of partnerships or sole proprietorships, LLC owners report business profits or losses on their personal income tax returns; the LLC itself is not a separate taxable entity. Like owners of a corporation, however, all LLC owners are protected from personal liability for business debts and claims — a feature known as “limited liability.” This means that if the business owes money or faces a lawsuit for some other reason; only the assets of the business itself are at risk. Creditors usually can’t reach the personal assets of the LLC owners, such as a house or car. (Both LLC owners and corporate shareholders can lose this protection by acting illegally, unethically, or irresponsibly.) A limited liability company (denoted by L.L.C. or LLC) in the law of many of the United States
