What Is An Llc And What Does It Mean?

What is an LLC and What Does it Mean?
Written by: - Phil Baker

LLC stands for Limited Liability Company. This type of company has limited liability meaning that its owners cannot be held personally liable for debts or obligations incurred by the company. LLCs are often used for businesses that involve complex legal structures.

LLCs are considered to be very similar to C Corporations because they follow certain tax regulations. They are generally considered to be better suited for businesses that require special legal protections such as intellectual property protection, employee benefits, and other corporate services. Both C Corporations and LLC have limited liability status and can have an unlimited amount of shareholders. 

This type of business structure is unique to the U.S. and doesn't exist in this format in places like the United Kingdom. 

An LLC is a great choice for anyone who wants to start their own business. The main advantage of an LLC over a sole proprietorship is that the owner(s) of the LLC can limit their personal liability for the actions of the company. Owners of an LLC are typically referred to as members. 

Regulations which govern LLCs can vary from state to state. An LLC is not required to have any specific number of members; it can be formed with one member (the person who owns 100% of the shares). 

If you want to find out exactly what LLC means, and lots more, then keep on reading to find out more!

Also read: Get The Insights - How To Get A Business Loan With No Sweats!

man on laptop

How Are LLCs Taxed? 

Traditionally, LLCs are taxed through what is known as a “pass-through” basis. This means that any and all profits or losses made by the business “pass through” each member's personal tax returns. 

We mentioned earlier that LLCs are considered very similar to C Corporations in terms of their limited liability status and unlimited shareholder potential. However, in terms of taxation, LLCs share the same structure as S Corporations. 

The only difference is that an LLCs can be structured in such a way as to allocate profits differently to each member of the LLC. 

In order to do so, you must file IRS Form 8832 which allows you to determine how much money should go to each member of the company. 

Also read: How To Organize Your Financial Records In 5 Easy Steps

 

What Are The Advantages And Disadvantages Of LLCs? 

One of the biggest reasons why a business owner might opt to register their company as an LLC is to ensure that the personal liability and that of their partners or investors is limited. 

There are some that view LLCs as blended partnerships, which translates to a straightforward business arrangement between multiple owners and a corporation which have particular liability protections built into their structure. 

That being said, there are a number of disadvantages to LLCs. If the founder's end of objective of the company is to launch it as a publicly-traded company, an LLC isn't a suitable option. 

Whilst corporations can exist in perpetuity, LLCs might need to be dissolved if a member dies or becomes bankrupt. This can depend on the state's laws surrounding LLCs. 

If your business is going to be operating in more than one state, then you'll want to make sure that you're registered in every state where you intend to operate. 

You may also face additional costs if you decide to incorporate your business in another country. 

You may find that incorporating your business as an LLC in one state and registering your business as a Corporation in another state will save you time and money. 

Also read: How To Implement Remote Payroll Operations Effectively

man on ipad

Are LLCs Common? 

The short answer is, yes, LLC's are more common than you might think. Large international companies like PepsiCo Inc, ExxonMobil Corp, and Johnson & Johnson are all LLCs. Even Alphabet, Google's parent company, is an LLC. 

There are also many smaller companies operating as LLCs. There are some variations to LLCs which include family LLCs, member-managed LLCs, and proprietorship LLCs

A great number of physician's groups in the US are registered as Limited Liability Companies. This makes a lot of business sense as it protects individual doctors and physicians from personal liability if the practice is investigated for medical malpractice. 

There are some types of companies, such as banks and insurance brokers, that cannot form LLCs. 

Also read: Have You Figured Out What To Ask The Employees Leaving Your Company

 

How Do You Start An LLC? 

If you've decided that an LLC would be best suited for your business, you'll first need to choose the right type of entity. 

This decision will largely depend on whether your business is going to focus primarily on revenue generation or service provision. 

For example, if you plan on selling products online, then you'll probably be better served by choosing a sole proprietorship. 

On the other hand, if you plan on providing services, then you'll likely be better off with an S-Corp. 

In either case, you'll need to file Articles of Organization with your state's Secretary of State office. 

Articles of Organization outline things like the rights, duties, powers, liabilities, and other obligations of each individual member of the LLC. Depending on the state these documents are filled with, you'll also need to include the names and addresses of all LLC members, the business' statement of purpose, and the LLC's registered agent. 

Also read:How Much Do You Understand Tax On Bonuses?

men on laptop

Conclusion

An LLC is a popular business structure because it provides several benefits over a traditional C-Corporation

It allows members to protect themselves from personal liability, while still allowing them to enjoy the tax advantages associated with running a business.

It also gives members control over their own destiny when it comes to dissolution. 

When selecting the right business structure for your LLC, consider how much protection you really need, what kind of income you expect to generate, and who will be managing the day-to-day operations of the company.

We hope this information has helped you find out more about LLC means. If you think this information will be helpful in the future, why not pin it for future reference? Thank you for reading!

Need a check stub generator for your business? Try our check stub maker today!

Create Your Pay Stub Now!

It takes an average of less than 5 minutes.

How are you paid?
Employment status
Select your state
Virginia
Create your paystubs in 4 easy steps
Your Pay stub Sample in black and white