What is an LLC or Limited Liability Company?

Answer:
Obviously you're here because you're considering

incorporating a business or perhaps you're researching some information for a term paper. Regardless, I'm here to explain what an LLC is, how you form one and what the pros and cons are.

An LLC stands for a Limited Liability Company. This is an incorporated company that offers limited liability to it's owners. It is not a corporation or a partnership though there can be numerous owners. The process of filing for an LLC is simple. There are dozens if not hundreds of websites and companies that offer incorporation services for a good price. An LLC is typically a small business. This small business has owners in which the owners are protected against certain liabilities the small business may incurr. Essentially, it separates business from personal life. If for one reason or another ABC LLC is sued the court cannot come after your personal belongings.

So file for your election to be an LLC if you are a small business and want to limit your personal liability to debts. This makes it sound like every small business should file for an LLC status. Not exactly, there are reasons why some companies choose to file for subchapter S status over LLC.

First of all, if you are a bank, insurance or non-profit company you are not applicable for LLC status.

Each State is a little different with regards to LLC incorporation. Some states levy a Franchise Tax. A Franchise Tax is a tax based on your companies revenues that in essence is a fee you pay for peace of mind knowing your personal liability is limited.

If you have aspirations of raising capitol or going public one day then you shouldn't consider an LLC. Because an LLC is owned by owners or members and not by share holders it is impossible to sell shares of the company. There are no share holders so an initial public offering isn't possible.

So if you have a small business with one ore more owners and you have a really good idea of the future of the business and understand the franchise tax then perhaps an LLC is for you. I always recommend talking to a Business Attorney as well as a good Accountant before deciding on your incorporation status.


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