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Limited Liability Company (LLC)

A business type with several advantages.

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When looking at business types, many business owners choose to form a limited liability company (LLC). Starting an LLC is a good way to "wall off" your personal assets from your company's liabilities, offering protection for your personal assets in the event of a judgment against your business. For this reason, forming an LLC is a better fit for many owners than a sole proprietorship or a general partnership.

A limited liability company (LLC) also has certain tax advantages. The business itself is not responsible for taxes on its profits. Instead, the LLC's owners, known as "members," report their share of business profit and loss on their personal tax returns, similar to tax reporting for a general partnership. This is known as "pass-through" taxation.

The LLC Advantage

In short, there are many benefits of a limited liability company, including:

  • Pass-through taxes. There's no need to file a corporate tax return. Owners report their share of profit and loss on their individual tax returns.
  • No residency requirement. Owners need not be U.S. citizens or permanent residents.
  • Legal protection. Owners have limited liability for business debts and obligations.
  • Enhanced credibility. Partners, suppliers and lenders may look more favorably on your business when you've formed an LLC.

Quick view: LLC vs. Corporation

Advantages of an LLC Advantages of a Corporation
  • no limit on the number of owners
  • profit and loss are passed through to the owners' individual tax returns
  • no annual meeting or minute book requirements
  • may issue shares of stock to attract investors
  • corporate income splitting may help lower overall tax liability
Disadvantages of an LLC Disadvantages of a Corporation
  • cannot engage in corporate income splitting to lower tax liability
  • cannot issue stock
  • double taxation of corporate profits and shareholder dividends
  • must hold annual meetings and record minutes
  • S Corporations have restrictions on number of owners

Watch our Video: What is an LLC?

Ready to Form an LLC? Get Started

Popular states to form an LLC in include Delaware, California, Florida,
New York, Nevada, and Texas.