Setting up a limited liability company (LLC) is the best business structure for most small businesses because they are inexpensive, easy to form and simple to maintain. They have tax options that benefit your bottom line.
An LLC, or limited liability company, is a US business structure that combines the simplicity, flexibility and tax advantages of a partnership with the personal liability protection of a corporation. The owners of LLCs are called members.
An LLC may have one or more "members", the official term for its owners. Members can be individuals or other businesses, and there is no limit on the number of members an LLC can have. With an LLC structure, the members' personal assets are protected from the company's creditors. Here are the advantages and disadvantages of an LLC so you can determine the right structure for your business.
Structuring your business as an LLC offers a number of advantages. The members are not personally liable for the actions of the company. This means that members' personal assets - houses, cars, bank accounts and investments - are protected from creditors trying to collect from the company. This protection is maintained as long as you run your business properly and keep your personal and business finances separate.
Unless you choose otherwise, an LLC is a pass-through entity, which means its profits go directly to its members without being taxed by the government at the company level. Instead, members pay taxes on the profits on their own federal income tax returns. This makes tax filing easier than if your business were taxed at the corporate level. If your business loses money, you and the other members can take the hit on your own tax returns and reduce your tax burdens.