Start Your Company
Learn how forming an LLC, an S-Corporation, an C-Corporation, or a Non Profit will impact both your liability and taxation as a business owner.
Limited Liability Company
The LLC or Limited Liability Company is the newest form of business incorporation, and is often described as a combination of a corporation and a partnership. Over 80% of small businesses are LLCs, and for many good reasons. With less requirements and more flexible ownership options than the other entities, LLCs provide business owners with limited liability protection. This means that the company assets are typically owned by the LLC and are separate from the personal assets from that of the LLC owner(s).
One of the most advantageous aspects of the LLC is that it has the ability to choose how it is treated as a taxable entity. According to the IRS an LLC is, by default, federally taxed as a partnership (in the case of a multi-member LLC) or as a sole proprietor (in the case of a single member LLC). The LLC, however, may elect to be taxed as a C or S corporation at any time the members so choose. This can be useful if the income from your business tends to fluctuate.
LLCs are also flexible with regard to how the owners are paid. For an LLC, if the members choose, the net income/profits of the LLC may be allocated to the members in different proportions to their ownership percentage in the LLC. This is different from a corporation, as corporations are required to distribute profits exactly in accordance with the proportion/percentage of ownership of each shareholder.
Learn more about LLCs here to help decide if that is the proper entity of formation for your business.