LLC (Limited Liability Company)
A flexible business structure that combines the limited liability protection of a corporation with the tax flexibility and operational simplicity of a partnership.
What Is an LLC?
A limited liability company (LLC) is a hybrid business entity authorized by state statute that protects its owners (called members) from personal liability for business debts while allowing pass-through taxation. LLCs have become the most popular structure for small and mid-sized U.S. businesses because they combine the asset protection of a corporation with operational and tax flexibility.
Key Characteristics
- **Limited liability**: members are not personally liable for LLC debts beyond their investment - **Pass-through taxation** by default (single-member as sole proprietorship, multi-member as partnership) - **Flexible management**: member-managed or manager-managed - **Fewer formalities** than corporations (no required board meetings or extensive minutes) - **Charging order protection** in many states limits creditor remedies against members
Formation and Maintenance
Forming an LLC requires filing articles of organization with the state and paying a filing fee. Most states require an operating agreement, even for single-member LLCs, to govern internal affairs. Annual or biennial reports and franchise taxes are typically required to maintain good standing. LLCs may elect to be taxed as S corporations or C corporations by filing IRS Form 8832 or Form 2553, which can produce tax advantages for high-earning businesses.