We have all heard the term, but how many of us really know what it means? Unless you are a business owner or a part of a company that is operated as such, then it is very likely you do not know the meaning of LLC. This article will give you the answer that you have secretly been wondering for a long time. What is an LLC? How does it differ from normal company structures? And what are the benefits of having an LLC?


So, what is an LLC?

An LLC or a Limited Liability Company is a business structure in the United States whereby the owners of the company are not personally responsible for the debts occurred by the company. The debt or the liabilities of the company in an LLC are not put on to the owners. The limitations of liability make LLC companies a true hybrid between a partnership or sole partnership and corporations. Giving you the best of both business models. LLC owners or ‘members’ cannot be held personally accountable for any debt or lawsuit against the company.

Another reason LLC’s are so common is the fact that an LLC can be used to run a business and it can be used to hold personal assets such as real estate, vehicles, boats and aircraft. It is important to remember that several businesses can be operated under one LLC. There are couple of different types of Limited Liability Company setups, like the single-member LLC and the multi-member LLC. A single-member LLC is owned by one individual, and a multi-member LLC is owned by two or more people.

LLC’s are created by filling of the form called LLC Article of Organization through your state’s Secretary of State office. You will also have to pay a one-time filing fee along with your form. After you have filed the proper form, the rest is simply deciding how you want to structure and operate your LLC. Choose your business name, decide on managing format and viola, your LLC is ready to go.

Upsides and Downsides of an LLC

Now that you know what an LLC is, let’s talk about what makes it so beneficial to the owners or members of the LLC. When talking about the benefits of an LLC first thing that comes up is personal asset protection. An LLC forms a brick wall of protection between your business and your own personal assets. Personal assets are pretty much everything you own: your cars, homes, boats, aircraft, bank accounts, investments, jewellery, etc. An LLC can protect you against creditors, limiting them only to going after the assets of your LLC.

LLC’s are also less regulated than corporations, and have more lax taxation rules. This might not seem like a huge win to an outsider, but for experienced businessmen, taxation and regulation is one of the key eliminators of profits. Distribution of profits to members, who are then taxed at their personal tax level, also gives LLC members the ability to avoid double taxation.

Like all other business models, LLC’s have their own restrictions and disadvantages. Some states charge an extra fee to those operating an LLC. Others limit the occupational groups of doctors or dentists from operating through an LLC. In some states, it is mandated that an LLC must be structured as a multi-member LLC. Make sure you check your own state’s regulations and restrictions before starting the process of starting your own LLC. The benefits of protection is a wonderful way to preserve what is yours, so do your research and make sure it is the best way to proceed for you, your assets, and or your business.