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LLC (limited liability company)

A limited liability company, or LLC for short, is a formal business structure that gives your business limited liability protection and flexibility on taxes.

LLC (limited liability company) overview

LLC is an acronym for limited liability company, which is a business structure that combines elements of corporate and partnership models.

Ownership

You can be the sole owner of your LLC, just like you were running a sole proprietorship, but with the added benefit of liability protection. You can also own an LLC with other owners, similar to a business partnership. LLC owners can be individuals, partnerships, other LLCs, trusts, banks, or corporations.

Liability protection

LLCs are limited in their liability because the assets of the company itself are the only things at risk to debt collection or lawsuits. Forming an LLC does not protect you from all personal liability, but rather only protects you from liability associated with the business you own or co-own. Corporations have similar liability protection for the personal assets of the owners.

Taxes

Typically, the owners of the LLC, like in a partnership or sole proprietorship structure, pay all applicable taxes for the profits and losses of the company on their personal income tax forms. In contrast, corporations are themselves responsible for taxes on their business income.

Operating agreement

LLCs use operating agreements to record the investments of the owners, how profits accrue to the owners, and how decisions are made among the owners. Even a single-owner LLC ought to have a clear written operating agreement to protect the owner from legal action.

Formation

If you decide to form an LLC, you need to register with the state you’re operating in, using a document called Articles of Organization, Certificate of Formation, or Certificate of Organization. You also need to register your LLC as a foreign LLC in any other states in which the LLC does business.

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