A limited liability company (also known as a limited liability corporation, or just "LLC") is a structural organization that many businesses choose to use as it combines the simplicity of pass-through taxation with the limited liability that comes with corporations. Follow along as FindLaw takes your through some of the varying aspects of LLCs. For more information, see our Incorporation and Legal Structures page.
I've heard of LLCs, but how exactly does pass-through taxation work?
The pass-through taxation works as though the profits and losses of the LLC pass directly through to the owners of the LLC. Unlike a corporation, an LLC is not a separate tax entity, meaning that the owners pay the taxes for the LLC.
Are there a minimum number of people needed to form an LLC?
No, there are not a minimum number of people needed to form an LLC. If you decide to form an LLC with yourself as the sole owner, however, you must be careful in your actions and documentation to keep your LLC from being considered a sole proprietorship.
Who are LLCs best for?
Organizing your business as a corporation or an LLC makes sense in two situations.
Are there any businesses that can't form an LLC?
Businesses that are engaged in banking, trust and insurance are sometimes prohibited from forming as an LLC. Additionally, some states disallow certain professionals (architects, doctors, lawyers, accountants) from coming together to form an LLC. Check your state's laws to find out if your business is eligible to form as an LLC.
How do I go about forming an LLC?
In most states, you will be able to form an LLC by following four (or fewer) simple steps.
Do I need an operating agreement?
Although many states do not require every LLC to be run by an operating agreement, here are some reasons why having one is a great idea:
How will my LLC be taxed?
Unlike corporations, LLCs are not considered to be a separate tax entity, meaning that the taxes pass-through to the owners of the business (like sole proprietorships and partnerships). The LLC, in general, does not pay income taxes for itself. However, the owners of the LLC must pay taxes on their share of the profits from the LLC on their personal tax returns.
LLCs may elect to be taxed like corporations, meaning that the LLC would pay taxes on its profits, instead of passing the taxes through to the owners.
What securities laws impact LLCs?
By definition, a security is an investment in a profit-making enterprise that is not run or controlled by the investor. Therefore, if you are planning on having more than one owner (member) in your LLC, then you may have to worry about securities laws.
If ownership interests in your business will be considered securities by the SEC, you must ensure that you qualify for an exemption before you take money from investors. If you cannot qualify for the exemption, you must register the sale of the interest in your LLC with the state and the federal SEC.
Get a Free Initial Case Review
While many of your state's LLC forms may be easy to fill out, understanding the laws and your obligations surrounding them may require the help of a legal expert. If you have questions, the advice of a lawyer may be a huge help. Contact a local attorney for a free initial case review to discuss how they can help you navigate business regulations with confidence.