What is a limited liability company?

W

In the United States, a limited liability company (LLC) protects its owners from personal accountability for the firm’s debts and liabilities. Limited liability corporations (LLCs) combine the characteristics of a corporation with those of a sole proprietorship or a partnership. While limited liability is comparable to that of a corporation, flow-through taxes for LLC members are a characteristic of a partnership instead of an LLC.

A limited liability company is a type of formal partnership that involves the filing of articles of organization with the state. An LLC is less complicated to form than a corporation, and it offers investors more freedom and security.LLCs have the option of avoiding paying federal taxes directly. Rather, the profits and losses are reported on the owners’ individual tax returns. Another categorization, such as a corporation, may be chosen by the LLC.

State statutes allow limited liability companies, as well as the regulations governing them differ from state to state. Members are the owners of a limited liability company. Individuals, foreign entities, foreigners, businesses, and even other LLCs can be members in many states because ownership is not restricted. However, some businesses, such as banks and insurance companies, are unable to form LLCs.

Advantages of an LLC:

  • A limited liability company’s members can avoid paying double taxation on business income.
  • It provides flexibility in terms of profit-sharing, and it is relatively easier to set up and manage than corporations.
  • The owners have the advantage of having direct control over the company.

About the author

Pieter Borremans
By Pieter Borremans

Get in touch