Form an Limited Liability Company

The Limited Liability Company or LLC is not a partnership or a corporation. Limited Liability Company (LLC) is a relatively new business structure allowed by state statute. An LLC is a distinct type of business that offers an alternative to partnerships and corporations, by combining the corporate advantages of limited liability with the partnership advantage of pass-through taxation.

Limited liability companies, or LLCs, are becoming more and more popular, and it's easy to see why. The Limited liability Company (LLC) provides the desired limited liability while avoiding some of the drawbacks (like double taxation and excessive paperwork). They combine the personal liability protection of a corporation with the tax benefits and simplicity of a partnership. In addition, they're more flexible and require less on going paperwork than corporations.

Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There may be unlimited number of members. Most states also permit "single member" LLCs, those having only one owner.

Member owned LLCs are analogous to partners in a partnership or shareholders in a corporation, depending on how the LLC is managed. A member will more closely resemble shareholders if the LLC utilizes a manager or managers, because then the members will not participate in management. If the LLC does not utilize managers, then the members will closely resemble partners because they will have a direct say in the decision making of the company.

A member's ownership of an LLC is represented by their "interests," just as partners have "interest" in a partnership and shareholders have stock in a corporation.

If you have made up your mind to start your own business, you will need to figure out which type of business entity you want to set up. One of the most popular business entities is the LLC, which has many advantages and benefits. Set up an LLC can protect your personal assets, reduce your taxes and save your time and efforts in filing excessive paperwork. Formation of LLCs are preferred because they combine the limited liability protection of a corporation and the pass through taxation of a partnership.

Generally, Limited liability Company (LLC) can be formed with unlimited numbers of shareholders. In such a case it is called multiple members LLC. Nevertheless, most states also permit "single member" LLCs, those having only one owner. A single-member LLC is taxed as a sole proprietorship, while a multiple-member LLC is taxed as a partnership.

There are many important differences between the corporation and LLC. The entities are taxed differently. An LLC is a pass-through tax entity. This means that the income to the entity is not taxed at the entity level; however, the entity does complete a tax return. The income or loss as shown on this return is "passed through" the business entity to the individual shareholders or interest holders, and is reported on their individual tax returns.