The acronym “LLC” stands for the phrase “Limited Liability Company,” and forming one is an easy and inexpensive way to structure your small business. An LLC provides you with the personal liability protection of a corporation, as well as pass-through treatment of income for tax purposes.

How does an LLC protect you as an owner of a business?

Like shareholders of a corporation, all LLC owners are protected from personal liability for business debts and claims. Because only LLC assets are used to pay off business debts, LLC owners stand to lose only the money that they’ve invested in the LLC. This feature is often called “limited liability.”

Are owners of LLC personally liable?

If you form an LLC, you will remain personally liable for any wrongdoing you commit during the course of your LLC business. For example, LLC owners can be held personally liable if they: treat the LLC as an extension of their personal affairs, rather than as a separate legal entity.

What makes a LLC a limited liability company?

A Limited Liability Company (LLC) is a business structure allowed by state statute. Each state may use different regulations, you should check with your state if you are interested in starting a Limited Liability Company.

What kind of business can not be a LLC?

A few types of businesses generally cannot be LLCs, such as banks and insurance companies. Check your state’s requirements and the federal tax regulations for further information.

How is a LLC different from a sole proprietorship?

The LLC allows the owner to file a simple tax return like a sole proprietorship. It also has a simple business structure without the recordkeeping requirements of a corporation. Sole proprietors and partners don’t have the protection of limited liability that owners of a corporation have.

What do you need to start a LLC?

Here are the steps involved in starting an LLC are fairly simple. You will need an Employer ID (business tax number) for the business. You’ll need to register the LLC with your state, ​ And you’ll need to create an operating agreement. How Does an LLC Pay Business Income Taxes?