LLC Explained

You may have seen it in many different places; it has become so common you may not even notice it anymore. Normally denoted by L.L.C. or LLC, the acronym refers to “limited liability company.” Business owners have to decide what business structure to use in their company formation. A LLC has been considered a mix of a corporation and a partnership and there are similarities between them and this type of company. This means that an individual’s personal liability is non-existent, much like a corporation, but it also allows for losses and profits not to be taxed, but instead passed on to the owners, without having to tax the company.

You may be wondering if it is based on the same principles as a partnership and the answer would have to be yes, it is similar. Ok, does that mean it is set up like a corporation? No, not exactly. If not one of those two structures, then it would have to be more like a sole proprietorship. To which the answer is not quite. While that may seem clear as mud to you, it starts to make more sense when you do research on the structure of an enterprise and the associated guidelines. Limited liability companies are on the rise as more and more business owners discover the savings, flexibility and liability protection. With a smaller company, it allows you to avoid personal liability, but at the same time, if not ready to incorporate, then it becomes an ideal structure.

As with any business plan or venture, there are pro’s and con’s. Any personal liabilities or debts incurred by the LLC owners and/or management are limited, even when they are in a managerial capacity. Of course, at times their profits and losses may be allocated in a different way from others, much like ownership interests. Also, the IRS now allows a LLC to have a choice in how they are taxed; as a corporation or partnership. One disadvantage is that state regulations for creating this type of company do not always have the current taxation changes and the expenses involved are much higher than with a sole proprietorship.

In recent years, all 50 states have adopted limited liability company laws, offering a very attractive alternative that most small enterprises, including the smallest home-based business, should consider. Even with all of the paperwork and at times, the expenses involved, it is considered an ideal structure.

When setting up a limited liability company, many states will allow the members to structure it themselves, as they wish. Secondly, a LLC is owned by its members and they can decide whether to appoint a manager to directly manage it for them. Or, they can assume the duties of president, vice-president, etc. among themselves in any way they see fit.

By Business Editor

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