Incorporation 101: The Nature of Limited Liability Companies

What is LLC?

Limited Liability Company (LLC) is a relatively new business structure allowed by state statute. It is neither a partnership nor a corporation, but a distinct type of business structure that offers an alternative to those two traditional structures by combining the corporate advantages of limited liability with the partnership advantage of pass-through taxation. how to register a DBA in Texas

Limited Liability Companies are becoming more and more popular, and it’s easy to see why. LLCs 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 be individuals, corporations, and other LLCs and foreign entities. There may be unlimited number of members. Most states also permit “single member” LLCs, those having only one owner.

Members in an LLC 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.

Why Should I Form an LLC?

If you decided to start your own business, you will need to figure out which type of business entity you want to set up. Today LLC is one of the most popular business entities established by new businesses because of the many advantages it has. Forming an LLC helps protect your personal assets, reduces your taxes and saves your time and efforts by eliminating excessive paperwork. In other words, LLCs are often favored over other types of business entities because they combine the limited liability protection of a corporation and the pass through taxation of a partnership.

Single- vs. Multiple-Member LLC

In general, LLCs can be formed with unlimited numbers of members, in which case it is called Multiple-Member LLC. Nevertheless, most states also permit Single-Member LLCs, having only one owner (member). A Single-Member LLC is taxed as a sole proprietorship, while a Multiple-Member LLC is taxed as a partnership.

Advantages of Forming LLC

LLC is a relatively new type of business structure that combines the best features of the corporation with those of the sole proprietorship or partnership. LLC has many advantages and benefits which cannot be enjoyed together in any other type of business.

Personal Liability Protection:
LLC is an entity separate from its owner(s). Being legally distinct entity, the personal assets of the owner (such as personal residences, and personal bank accounts) are not reachable by business creditors. The LLC owner’s liability is generally limited to the amount of money that person has invested in the LLC. Thus, LLC members are offered the same limited liability protection as corporation’s shareholders.