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What is an LLC (Limited Liability Company) and How Can it Benefit Your Business?

Forming an LLC can be overwhelming for new business owners due to the complicated paperwork and lengthy formation process.

However, with the right guidance, you will have your LLC up and running in no time. Check out our guide about forming an LLC as a small business owner.

Why Should You Choose the LLC Business Structure?

When you start a business, it is a good idea to choose a legal entity structure for it. The simplest structure is a limited liability company (LLC). There are many additional benefits offered to limited liability companies, such as personal liability protection for business owners and members.

When you form an LLC, owners, and members are guaranteed the limited liability protection that protects personal assets, such as real estate, vehicles, and bank accounts. Professional assets will remain separate from personal assets, which makes the LLC business structure favored by most small business owners

An LLC can also be owned by one or more people, also referred to as the members of the LLC. A single-member LLC is an LLC that is owned by only one person. If your business has more than one owner, you can opt for a multi-member LLC. Don’t confuse this with a sole proprietorship as these don’t cover any liability, and tax returns for a sole proprietorship are slightly different than that of an LLC.

Other Types of Legal Entity Structures

In addition to LLCs, there are other types of legal entity structures, including the following:

  • Sole proprietorships
  • Limited partnerships
  • Corporations
  • General partnerships
  • Limited liability partnerships
  • Nonprofit corporations

Forming an LLC requires significantly less paperwork than most of these types of structures mentioned above. It’s also important to keep in mind that a sole proprietorship or partnership does not provide companies with any liability protection, which can leave you in a very vulnerable position.

Registering your business as an LLC is the best way for you to protect your business and yourself, and it’s a fairly simple process to complete. Contact the professionals at LLC Formations to find out if the LLC business structure is right for you.

What is an llc

Why Choose an LLC Over a Sole Proprietorship?

Some business owners run their businesses as a sole proprietorship entity. However, sole proprietorships do not offer the same benefits as an LLC, such as pass-through taxation and asset protection.

If your business is sued, the creditors could go after your personal assets to satisfy any business debts, and plaintiffs in lawsuits against your business could likewise access your personal assets to satisfy any judgments.

This can not only affect your personal income for years to come, but it can even force individuals to dissolve their businesses completely. Forming an LLC can protect you from the reach of creditors and lawsuits since it provides you with personal liability protection.

How Can an LLC Benefit Your Business?

An LLC can offer multiple benefits to your business, including the following:

Personal protection from liability

An LLC limits the liability of your business to the business itself. As long as you have not committed a crime with your business, your assets will be protected against lawsuits and business debts and you will not be held personally liable. The specific rules and regulations can vary from state to state.

Pass-through taxation

Another one of the major benefits of an LLC is taxation. When you start an LLC, pass-through taxation and other tax benefits apply. When you have an LLC, the profits pass through to each member which makes you also eligible for a tax return.

The individual members then report their individual earnings on their own personal tax returns under self-employment. Unlike LLCs, corporations are taxed twice. The corporation is taxed first and then people are taxed on their personal tax incomes that they earn from the corporations.


LLC structures also are more flexible than most other structures. There are not very many limits placed on how you can organize your business, although specific rules can vary by state.

When you register as an LLC business entity, you have the choice of how you want to organize the called members of your LLC. You can either register as a single-member or multi-member LLC and then you can choose to manage your own business or hire others to manage it for you. An LLC also allows you to choose to be taxed like an S-corporation if that would be more beneficial to you.

Simple to Form

LLCs are also relatively simple to form. Owners of an LLC don’t have to have a board of directors, and you don’t have to appoint officers like you would with a corporation. There is also no requirement for annual meetings or for recording minutes and reporting the information.

With an LLC, there are very few obligations to stay on top of aside from what’s within your business. The specific formation requirements and filing fees can vary from state to state.

Gives Access to Business Credit

After you have established a new LLC, you can apply for a federal tax identification number from the Internal Revenue Service. This number is only available to business structures to monitor taxation information for tax purposes.

The federal tax identification number also allows you to open your own business bank account so you can build a separate business credit score. Building the credit of your business can allow you to access credit and loans at better rates of interest so that your company can grow.

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Limited Liability Company

How Do Your Register an LLC Business Entity?

Most states process LLC applications through their Secretary of State office. You will have to search to make certain that your intended LLC name is not already registered with the state. If the name is taken, you will need to choose another business name.

You will then have some paperwork that must be filled out and filed with the Secretary of State’s office. The documents will outline the structure of your business, relevant information about your business, and the number of members.

The documents will also designate someone to serve as your company’s registered agent for the service of process. A registered agent deals with the correspondence from the Secretary of State and stays on top of important documents and changed that may need to be made. It’s important to have a knowledgeable registered agent so they can catch any issues within the documents before they’re submitted.

There will also be filing fees when you file for your limited liability company LLC approval. You may need to file paperwork or pay fees on an annual basis to keep your LLC in good standing with your state.

Do I Need to Live in the Same State As My LLC?

You do not have to live in the state as your LLC. Some businesses choose to establish LLCs in other states because of the benefits that they can obtain by headquartering their companies in different states.

There are many states that business owners favor for establishing LLCs. These include Nevada, Wyoming, Alaska, New Hampshire, Montana, and Florida. Some states have better business climates than others in regards to regulations, tools, and individual tax options.

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Types of LLCs

Type of LLC Definition
Domestic LLC A domestic LLC is one formed and operated within your state. If you're looking to form an LLC, this could be a good place to start. Your state has the authority to govern your LLC if formed within its jurisdiction.
Foreign LLC A foreign LLC is one that 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 for tax purposes or a better client base. This does not mean that the LLC was formed internationally, just in different states. The members of an LLC can all live in different states.
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. Even though each member is apart of the same LLC, each member must file taxes independently. When operating a member-managed LLC, we recommend drafting an LLC Operating Agreement between all members of the limited liability company. The LLC Operating Agreement outlines the responsibilities and expectations of each member. Although the requirements may vary by state, we recommend all LLCs sign this agreement.
Manager-Managed LLC If some of your partners want to remain passive in running the LLC, then this is a manager-managed LLC. The owners are not as involved as the people who are hired to run the business. Either members or non-members can be managers of the LLCs.
Single-Member LLC This is an LLC with only one member. If you want to form an LLC alone, this is a great option. You will still need to submit the formation information and follow the rules of an LLC, but you will have the many benefits offered to LLCs. It's also much easier to handle the personal income tax requirements than self-employment taxes. Income tax from your corporation can be handled by attorneys or accountants.
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 if there is a death or disagreement. The Operating Agreement can be updated as changes are made to the LLC.
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 be a series of 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 and they were launched in 2009. These types of LLCs choose to be restricted within their Articles of Organization and therefore cannot make certain distributions among members until 10 years after forming their LLC.
L3C 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 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 in. New Mexico is one of the only states that allows for truly anonymous LLCs.

How Can LLC Formations Help You?

While you can set up an LLC on your own, getting help from a professional can make the process simpler. A professional can also provide you with guidance about the best states for creating your LLC. He or she can also make certain that your documents are filed correctly and help you to maintain your LLC so that it remains in good standing.

Forming an LLC is a good idea no matter which stage you’re in and regardless of how you plan to integrate a business structure. An LLC can help to protect you while helping to give your business more credibility. LLCs are also relatively simple to set up and maintain. You can get started today by contacting LLC Formations for help with setting up your LLC.


The limited liability company structure, much like a corporation, provides owners with limited liability asset protection. This means that the assets are typically separate from the personal assets of the LLC owner(s).

Should there be a lawsuit aimed at the LLC, whether with or without merit, the LLC would be sued. The assets could be attacked, however, that would be separate from the personal assets of the owner(s), which would be protected.

The potential liability of an LLC owner is limited only to whatever that owner has invested in the LLC, such as an initial, investment or any retained earnings. This is very much the same as if you had purchased shares of stock in a corporation. In most cases, the most you can lose is what you paid for the stock, but you typically will not lose more than that, no matter how much the LLC might potentially lose from being sued.

A: An LLC member is the owner who has many responsibilities to keep the LLC running. An example could be a real estate agent who works independently.

A: This differs from state to state, so you need to check the state law for wherever you are registered within.

A: Yes, you can definitely form an LLC by yourself. Many people choose to do this in order to create a holding company for business assets.

A: If you own your own limited liability company, you pay yourself after taking into account your profits and losses. When you form a limited liability company, LLC owners understand that you don't usually start making money as soon as you form an LLC. It can take a lot of time before your company starts to make more money than it spends after monitoring profits and losses.

A: This differs in every state, so be sure to check the specific state in which you have your company registered. You can also contact LLC Formations for more information.