LLC- LIMITED LIABILITY COMPANY

LLC which stands for Limited Liability Company, is widely known as a “pass-through” entity because the profits of an LLC company flow directly to the managers/members. This type of business structure is quickly becoming the most common form of incorporation. LLCs have a relatively flexible structure that provides many of the benefits of a partnership or sole proprietorship, with some of the protections provided by C corps and S Corps. They do not require many of the formal processes required by other types of corporations.

An important feature of LLCs is limited liability which means that all LLC owners are protected from personal liability for business debts and claims. This means that if the business itself can't pay a creditor—such as a supplier, a lender, or a landlord—the creditor cannot legally come after an LLC member's house, car, or other personal possessions. Because only LLC assets are used to pay off business debts, LLC owners stand to lose only the money that they've invested in the LLC.

In addition, an LLC is not considered separate from its owners for tax purposes. Instead, it is what the IRS calls a pass-through entity like a partnership or sole proprietorship. This means that business income passes through the business to the LLC members, who report their share of profits—or losses—on their individual income tax returns.

However, LLCs are unable to offer stock to the public and are still required to keep a fair amount of internal paperwork. LLCs do still require an owner to follow filing regulations. Companies that abuse the flexibility offered by filing as an LLC can lose their personal liability protection, in a process called “piercing the corporate veil”. If this happens, business owners can retroactively be held liable to pay corporate debts with personal funds.

Who Should Form an LLC?

Any person starting a business, or currently running a business as a sole proprietor, should consider forming an LLC. This is especially true if you're concerned with limiting your personal legal liability as much as possible.

LLCs can be used to own and run almost any type of business. However, in some states some types of professionals must form special professional LLCs. An LLC can be used for a business of any size—from one-owner operations to businesses with many co-owners. LLCs are also the most common legal entity used to own rental and commercial property.