LLCs

An LLC, or limited liability company, is a business structure that provides limited liability protection to its owners, known as members, while offering flexible management and pass-through taxation. LLCs are most common in the United States, though forms with similar features exist in other countries. Liability protection shields members from personal liability for business debts and lawsuits, with exceptions for personal guarantees or fraud.

Tax treatment is flexible: by default, an LLC is a pass-through entity for federal taxes, meaning profits and losses pass through to members' personal tax returns and are taxed at individual rates. A single-member LLC is typically treated as a disregarded entity for tax purposes, while multi-member LLCs are taxed as partnerships. An LLC can also elect to be taxed as a corporation if advantageous.

Formation and governance: an LLC is created by filing articles of organization with the state and paying a filing fee. Most states require an operating agreement that sets ownership, management, and operating rules, though some do not require it by law. LLCs can be member-managed or manager-managed, providing flexibility in decision making and daily operations.

Ongoing obligations: LLCs typically file annual or biennial reports and pay state fees; some states impose franchise or gross receipts taxes. Franchise, transfer, and self-employment taxes may apply to members depending on elections and jurisdiction.

Advantages include limited liability, flexible management, and avoidance of some corporate formalities; disadvantages can include self-employment taxes in some cases and varying state rules. An LLC’s suitability depends on state law and business goals.