What is an LLC?
A Limited Liability Company (LLC) is a business structure that combines the liability protection of a corporation with the tax benefits and operational flexibility of a partnership.
An LLC, or Limited Liability Company, is a legal business entity that is separate from its owners (called "members"). This separation provides personal asset protection while offering flexibility in management structure and tax treatment.
LLCs are governed by state law, which means the specific rules and requirements can vary from state to state. However, the core benefits and structure remain consistent across all states.
Key Point
An LLC is considered a "pass-through" entity for tax purposes, meaning the business itself doesn't pay federal income taxes. Instead, profits and losses pass through to the members' personal tax returns.
Limited Liability Protection
Your personal assets (home, car, savings) are protected from business debts and lawsuits.
Tax Flexibility
Choose how your LLC is taxed: as a sole proprietorship, partnership, S-corp, or C-corp.
Management Flexibility
No required board meetings, corporate formalities, or complex management structures.
Professional Credibility
Having "LLC" in your business name adds legitimacy and professionalism.
Easy Formation
Simple paperwork and minimal ongoing requirements compared to corporations.
Perpetual Existence
The LLC continues to exist even if members leave or new members join.
Single-Member vs Multi-Member LLCs
Single-Member LLC
- • One owner (member)
- • Taxed as sole proprietorship by default
- • Simpler management structure
- • Still provides liability protection
Multi-Member LLC
- • Two or more owners (members)
- • Taxed as partnership by default
- • Requires operating agreement
- • More complex profit/loss distribution
Management Structure
Member-Managed LLC
All members participate in day-to-day operations and decision-making. This is the default structure.
Manager-Managed LLC
Designated managers handle operations while members act as passive investors, similar to limited partners.
Myth: LLCs Don't Pay Any Taxes
Reality: While LLCs don't pay federal income tax at the entity level, members still pay taxes on their share of profits, and some states impose LLC-specific taxes or fees.
Myth: LLCs Provide Complete Protection
Reality: While LLCs provide significant protection, you can still be personally liable for your own wrongful acts, personal guarantees on loans, or if you don't maintain proper business formalities.
Myth: All LLCs Need Operating Agreements
Reality: While highly recommended, operating agreements are only legally required in a few states. However, having one protects your limited liability status and prevents disputes.