LLC Entity Overview

A limited liability company (LLC) is a business structure which combines many of the benefits of a sole proprietorship or partnership with the limited liability of a corporation. It is a hybrid legal entity, combining the pass-through taxation of sole proprietorships and general partnerships with the liability protection of corporate structures.

The owners of an LLC are called “members”. Depending on your state, the members of an LLC may be one or more individuals, corporations or other limited liability companies. Some states require that all members be individuals and not corporate entities. The owners of an LLC report their business profit on their personal tax returns, Similar to S corporations, the LLC business structure protects the owners from liability for the company’s debts.

LLC Ownership Structure

When creating an LLC, you’ll be able to select between two different management options:

Member Managed – The most common management option for an LLC is “member managed.” Under this option, all of the members (owners) of the company are responsible for the business decisions and day to day operations of the LLC.

Manager Managed – You may also elect to create your LLC with managers in addition to members. Under this scenario, the members of the company designate one or more managers who are responsible for the day to day operations of the business. Managers may also be members of the LLC. This option is appropriate for companies with passive investors that serve as members, but do not participate in any of the business operations.

LLC Taxation Overview

One of the main benefits of the LLC business structure is that it allows the company’s owners (called “members”) to report the business profit or loss on their personal tax returns.

The business is granted limited liability protections. The Internal Revenue Service may treat single member LLCs as sole proprietors for tax purposes, with income flowing to the business owner’s personal return. The Internal Revenue Service treats multiple members LLCs as partnerships, unless the company elects to be treated as a corporation . The Internal Revenue Service does not levy company-level taxes on an LLC, but some states do (Check with the Secretary of State). Members who work for an LLC are usually required to pay self-employment taxes.

LLC, C-Corporation, or S-Corporation?

Compare and choose the right entity for your new business.

 

LLC C-Corporation S-Corporation Partnership
Definition Combines elements of a corporation and a partnership. Separate legal entity with legal rights and liabilities that are different from shareholders (owners). Separate legal entity with legal rights and liabilities that are different from shareholders but that offers tax advantages by the IRS. Two or more people owning and operation the business preferably with a partnership agreement.
Number of Owners No limit No limit on shareholder 100 No limit
How to Start State regulated and Articles of Organization and required tax numbers. State regulated. Need Articles of Incorporations, bylaws and tax numbers. State regulated. Need Articles of incorporations, bylaws and tax numbers. Should have an agreement and required tax numbers.
Management Control Rests with management committee (owners or those shareholders). Rest with the board of directors appointed by the shareholders. Shared by owners shareholders. Shared by general partners according to partnership agreement.
Taxation Taxes can be assessed several ways based on the structure of the company but is taxed once. Profit is taxed to the corporation and then dividends to owners are taxed again. Profits from the company are taxed once. Profits are split among owners. Profits from the company are taxed once. Profits are split among partners based on partnership agreement.
Personal Liability Liability limited to corporation assets unless a personal guarantee is signed. Liability limited to corporation assets unless a personal guarantee is signed. Liability limited to corporation assets unless a personal guarantee is signed. General partnership personal assets are at risk, limited partnership.
Transfer of Ownership Yes Yes Yes Based in partnership.

Frequently Asked Questions

Our experts answer all important questions.

What is a Limited Liability Company (LLC)?

An LLC is a hybrid legal entity, combining the pass-through taxation of the sole proprietorships and general partnerships with the liability protection of corporate structures. The business organization is authorized according to state statute. Establishing an LLC provides business owners with a layer of separation between themselves and the service or product they sell or provide; should the company be sued the owners’ assets are usually protected.

Who can form an LLC?

There are no citizenship or residency restrictions on who can become a member of an LLC, nor does a member have to incorporate in the same state where they registered the LLC. States only require that individuals be of the age of majority, 18 in most cases, to register an LLC.That means, not only that foreign nationals can become members, but also that corporations and other LLCs can become members of an LLC. In some cases, another corporate entity may be the sole member of an LLC. In that event, they would be treated as a partnership or multi-member LLC for tax purposes.

How are LLCs managed?

LLCs can be either member-managed or manager-managed. A member-managed LLC distinguishes between owners, or managers and members, who may play a more passive role in the day-today operation of the company. Manager-managed LLCs are structured and act like traditional corporations.

What are the advantages of becoming an LLC?

LLCs have a flexible organizational structure to go along with their flexible tax designation. These in include:

  • Limited Liability Protection
  • Pass-Through Taxation
  • Few Ownership Restrictions
  • Minimal Compliance Requirements
  • Flexible Allocation of Profits to Individual Members
  • Versatile Tax Designation

How do I get started?

Quickly complete our convenient online order form, which collects all of the necessary information, and only takes a few minutes. Please contact us by email or phone, if you have any questions or would like help getting your order processed.

What happens if the company name I want is not available?

We request that you provide up to three name choices when you order. The name is selected based on your priority and availability. If all three names are not available, we will contact you for additional name choices.

What happens if I change any of my information after my order is complete?

Depending on the type of information that is changing. Some information, for example, company’s name, business purpose, number of shares and/or par value (for corporations), must be changed with the state by filing an amendment. The state filing officially updates the information the state has for your registered company.If you have any questions on whether specific information in your state-filed documents would need to be updated by means of an amendment filing, contact our office.

What if there is an error on my state-filed documents?

We are confident in our ability to provide accurate filings. We review each order we receive to identify potential errors. In the unlikely event that an error is made, We’ll respond promptly to remedy any error.We warranty our filing services against defects caused by us for the life of your company. We will absorb any fees/costs necessary to correct the error and will correct the mistake as quickly as possible.If, on rare occasions, the state makes a mistake in entering your information. If you notice an error, contact us immediately and we will work directly with the state to correct it.

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