What Does LLC Stand For

What Does LLC Stand For

What Does LLC Stand For And How Does It Work?

LLC is short for Limited Liability Company. It is one of the business structures in the United States and mainland Europe which protects the owner from personal responsibility for its liability and debt. Limited liability companies have the features of corporation and partnership.

More Information About Limited Liability Company

Limited Liability Companies are authorized to perform under state statutes. And the rules guiding LLCs are different from each state. A member(s) is a term that describes the owners of a Limited Liability Company.

In some states, LLC ownership is not restricted to some people or groups of people. But in some states ownership is restricted to some groups like banks and insurance companies.

An LLC is easy to set up and gives more flexibility and protection to its members.

Characteristics Of An LLC

• Regulation of LLCs differs from each state
• Any individual or entity can be part of a Limited Liability Company with the exemption of insurance companies and banks
• Owners are called members in a limited liability company
• Members are protected from being chased for payment of the company's liability and debts

A limited liability company can be owned by an individual or an unlimited number of individuals

Benefits Of LLC

The major reason why business owners decide to register their business as a Limited Liability Company is to reduce the personal liability for themselves and their members.

The flexibility in managing LLC is a huge plus for registering a company as an LLC, as an LLC company can be managed as a partnership or corporation.

If managed like a corporation, a Limited Liability Company can notice all the formalities of a corporation and they can choose to skip the formality part as well.

With LLC, profits are passed to the owners and taxed as personal income. So, it helps to avoid double taxation for the business owners.

How LLCs Are Taxed

An LLC can choose to be taxed like a corporation or a partnership. However, if an LLC is working with a corporate format, the company's profit will be separated from the owner's income and are taxed with the corporate tax rate.

It is important to note that the corporate tax rate is lower than the individual tax rate, and that means that the corporation will have more money for its business. However, if the profit of a corporation is shared with their shareholders, it will be taxed again 'i.e. double taxation' when reported on their personal tax form.

Now, to avoid this double taxation, an LLC can choose to be taxed as a partnership. Using the method called pass-through taxation. This way, the company's profits are passed to the owners and they will be taxed once as part of members' income.

Reasons For Opening An LLC

The major reason why people decide to open a Limited Liability Company is that an LLC is protected against the legal and financial duties of the company. If the company goes bankrupt or the company is found liable for any financial case, members' assets will not be confiscated.

The cost of opening a Limited Liability Company is less when compared to the cost of opening a corporation. Some Liabilities You Can’t Skip As An LLC

Members are not held liable for any financial issue, but that's not the case when they take part in numerous illegal issues. They are held responsible if they use the company name to engage in fraudulent activity.

An LLC is liable if they carelessly appoint a manager that causes damage to a third party.

LLC Vs Partnership

The major difference between a Limited Liability Company and a partnership is that, in a Limited Liability Company structure there is a clear distinction between a business asset and personal asset of the owner. This saves the owner from the LLC's liability and debt.

If an LLC is structured as a partnership, it will be required to file Form 1065 (tax document issued by IRS in the US.). On the other hand, if an LLC is structured as a corporation, it will file Form 1120.

To ensure transfer of interest when an individual leaves a Limited Liability Company, a business continuation agreement will be signed by members. However, without the agreement, all other members must disintegrate the company and form a new company.

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Overview of What Does LLC Stand For

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