The business formation know as an LLC is easiest described as being a hybrid between a partnership and a corporation. To put it simply, limited liability company gives you the good parts of a corporation without all of the corporate formalities.
The owners of an LLC, who are called member, are looked upon as a partnership for tax purposes. The LLC is a pass-thru tax structure, so income taxes are paid by its owners, so the LLC never pays income taxes itself, unlike a corporation.
Because of this, an LLC does not suffer from the double-taxation problem that a corporation faces. In other words, because the tax obligation is put on only the owners, any income is only taxed once. However, an LLC must still pay state (assuming there is any) and federal payroll taxes.
At the time of form an LLC, a decision is made about how to handle income taxes. You can handle income taxes as if you were a sole proprietor, a C corporation, or an S corporation. The great thing about an LLC is that you get to decide how to handle paying taxes.
If the LLC is set up correctly, and personal and business happenings are completely separated, the owners can look forward to certain personal liability protection. This is one of the biggest reasons to form an LLC versus running a business as a sole proprietor. Also, a business generally earns more respect when it has a formal structure, such as a limited liability company.
LLC form is performed by someone who does not necessarily have to be a member. There are actually several very reputable online companies that will form your LLC for a very nominal charge, saving you from having to ensure the structure is set up correctly.
A member’s financial liability is limited to the amount of money contributed by that member. When you are operating as a limited liability company, you can bring in more than one partners, who can be active in the company, or serve as silent investors.
While a limited liability company is similar in structure to a corporation, it offers more flexibility to its owners. Creating an LLC with an online incorporation services company is most suitable for a smaller business in which the number of owners is limited.
In the United States, the limited liability company is a fairly new business structure. As early as 1986, LLCs were only allowed in two states. Now, every state recognizes this business structure.
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