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LLC Definition

What Is an LLC?

An LLC ("limited liability company") is a type of business structure that has benefits for business owners. An LLC is different from a sole proprietorship and a corporation in many important ways. If you are considering forming an LLC, it could help to know the benefits of this business structure.

Key Takeaways:

  • There are benefits to forming an LLC vs. other types of legal entities.
  • LLC owners need articles of organization and an operating agreement, and they may need to name a registered agent.
  • An LLC provides protection from business debts and flexibility with taxes.

Understanding LLCs

How is an LLC different from other types of business entities? One feature of a limited liability company (LLC) is liability protection. You might be wondering what would happen if someone sues your small business. The answer depends on the type of business entity that you have. A sole proprietor could lose personal assets like a house or car. If you are the owner of an LLC, your LLC could protect your personal assets.

There is also liability protection with a corporation, but a corporation is more expensive to operate and has additional requirements such as maintaining a board of directors.

Another difference between an LLC and other business structures has to do with taxes. With an LLC, income tax can pass through to the owner's personal tax return. For this reason, small business owners may want to form an LLC for tax purposes.

How to Form a Limited Liability Company

One step in forming an LLC is to decide on a business name. Another step is to file articles of organization. There are filing fees for the articles of the organization. Before you file, you may want to decide on your registered agent. You will also need an operating agreement.

LLC filing fees are different from state to state. There is also an annual fee. For more information on each step in the process, visit our page on forming an LLC.

Commonly Asked Questions

Do I need to form an LLC for my small business?

It may help to consider how risky your business is. Members of an LLC have asset protection. This means that your LLC protects you from personal liability. The IRS (Internal Revenue Service) allows owners of an LLC to have flexibility when it comes to taxes.

Are there disadvantages to having an LLC?

A sole proprietor does not have to pay filing fees to file articles of organization with the Secretary of State. LLC annual fees add to the cost of having an LLC. You may also have to do annual compliance reports.

Related Resources

Next Steps

Contact a qualified business organizations attorney to help you choose the best formation for your business.

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