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The abbreviation “LLC” stands for limited liability company. The name refers to one of the primary benefits of this business entity type—LLCs allow business owners to keep their assets separate from the company’s. This effectively limits their liability when it comes to company debts and responsibilities.


Limited Liability Protection
By forming an LLC, only the LLC is liable for the debts and liabilities incurred by the business — not the members. The member’s liability is limited to the personal interest they have invested in the company, thus protecting the personal assets of the individual member that are separate from the LLC.

Pass-Through Taxation
The LLC typically does not pay taxes for itself. Instead, the net income/loss is “passed through” to the personal income of the owner(s)/member(s) and is simply taxed as personal income. Federally, LLC taxation is handled very much like a partnership or sole proprietorship in the case of a single-member LLC.

Member-Managed LLC
This type of LLC is where all owners (members) are operating the business themselves equally. This is the most common type of LLC.

No Ownership Restrictions
The LLC does not have any residency or citizenship restrictions, which allows foreign nationals to have ownership in an LLC if desired.

In addition, other corporate entities may be LLC members, which means that other corporations or LLCs (or other entities) may be a member of the LLC or maybe the sole member (although an LLC with a sole member that is a corporation or LLC is treated for tax purposes as a partnership or multi-member LLC).

Versatile Tax Status
One of the most beneficial aspects of the LLC is that it can 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 choose.

Flexible Profit Distribution
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 must distribute profits according to the proportion/percentage of ownership of each shareholder.

Minimal Compliance Requirements
LLCs are subject to limited state-mandated annual filing requirements and ongoing formalities. While corporations are typically required to have at least an annual meeting of directors and shareholders (and an initial meeting of the same), adopt bylaws, and keep minutes of all meetings and all formal corporate resolutions, an LLC is not required to do any of those things (see the explanation of an operating agreement, above). The LLC members may have whatever meetings they wish and may document any such things as they wish. However, they are not required to do so.


Self Employment Taxes
Although we list Pass-Through Taxation as an LLC benefit, it can also be a disadvantage. Often the taxes passed through and reported as the personal income of LLC members will be higher than the taxes at a corporate level. You will still pay for federal inclusions such as Medicare and Social Security. If you’re confused if this business structure will be the right tax choice for you, it’s a good idea to speak to your accountant or financial advisor.

Careful Personal Records
As the owner of an LLC, you need to keep careful records of your business expenses — separate from your finances. This is the only way to ensure limited liability. Therefore, you should have separate bank accounts and cards to track business expenses.

LLC Termination
Usually, if a member departs an LLC, then the LLC is terminated and ceases to exist. This is unlike a corporation where it still exists regardless of what shareholders come and go.

Since it’s required to keep your business finances separate from your finances, you’ll need a business checking account. Banks usually charge different fees and monthly expenses for these types of accounts. Also, If a check is made out to your LLC, then it is required to be deposited into a business bank account and cannot just be cashed. And some banks might charge extra for this type of deposit.


LLCs, unlike corporations, are not required to hold annual meetings and keep minutes, nor are they subject to the more stringent record-keeping required of corporations. But there are specific LLC requirements you’ll need to keep in mind.

The operating agreement is an internal document and is an agreement amongst the members or owners, which means it is not recorded with the state.


The governing document of the LLC is called an operating agreement, and it is within this document that the members lay out all essential provisions, such as standards for LLC governance, ownership parameters, and rules around member changes (adding or removing members or what happens in case of death or incapacity of a member).


In many states, LLCs must file an annual or biennial report with their Secretary of State. Failing to file can result in your business being dissolved.


Domestic LLC
A domestic LLC is one formed and operated within your state. Your state can govern your LLC if formed within its jurisdiction.

Foreign LLC
A foreign LLC operates in a different state than the state in which it was formed. For example, you might have formed your LLC in Texas, but you’re operating your LLC in Georgia. This does not mean that the LLC was formed internationally.

Member-Managed LLC
This type of LLC is where all owners (members) are operating the business themselves equally. This is the most common type of LLC.

Manager-Managed LLC
If some of your business partners want to remain passive in running the business, this type of structure is a manager-managed LLC. Either members or nonmembers can be delegated as a manager.

Single-Member LLC
This is an LLC with only one member.

Multiple-Member LLC
This is an LLC with multiple members. A multi-member LLC must be more careful in spelling out carefully with the LLC Operating Agreement the rights of each member in case the LLC folds or there is a death or disagreement.

Series LLC
A Series LLC is a unique form of an LLC that acts as a master LLC or umbrella over a series of separate legal entities. This can include members, assets, managers, or interests. The series LLC started in Delaware and is now an option in only eight states: Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, and Utah.

Restricted LLCs
Restricted LLCs are a type of LLC available in Nevada only that was launched in 2009. These LLC types choose to be restricted within their Articles of Organization and, therefore, cannot make certain business distributions among members until ten years after forming their LLC.

An L3C company is a for-profit company with a stated philanthropic social purpose. This type of LLC is a hybrid business structure that uses the legal and tax flexibility of an LLC, the social benefits of a nonprofit organization, and the branding and market positioning advantages of a social enterprise.

Anonymous LLC
An anonymous LLC is where the ownership details of the LLC are not made public by the state the LLC is registered. New Mexico is one of the only states allowing for anonymous LLCs.

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