A limited liability company is a hybrid type of legal setup that allows for the flexibility and tax benefits of a partnership while providing limited liability often given to corporations.

One of the biggest benefits is that LLCs are not taxed as a separate business entity, but all profits and losses are passed through to each member and are claimed on personal tax returns, much like a partnership.

LLCs offer many advantages that are quite attractive to many small business owners. The biggest draw for many is the tax flexibility. Since the IRS does not consider an LLC to be a distinct and separate entity for tax purposes, the IRS will not tax an LLC directly, at least not initially. Usually members of an LLC will create an operating agreement, outlining how the LLC will be treated for tax purposes. This is important to create or your business will be governed by the default rules in your state.

LLCs offer more flexibility than C-Corps or S-Corps and require less paperwork than other entities. Like corporations, LLCs provide their members protection from liability, meaning individual members are not personally liable for debts and most court judgments incurred by the LLC.

There are some downsides with creating an LLC over another type of business though. Unless you are taxed as a corporation, your LLC will usually have to pay self-employment taxes. Often these taxes are higher than they would be on a corporate level.

Unless roles are spelled out in an operating agreement, confusion about some of the company roles may exist. Unlike other business structures, the roles are not written out and defined when the company is formed. It is important to think carefully of a way to address this before it is an issue.

Forming an LLC may not be the right option for every business, but is a popular for many small businesses because of the protection and flexibility it offers and the relative ease it is to put in place. If you are forming a new company, it is crucial to speak with our experienced business lawyers. We can help you set up the right type of entity for your business. Call today for your free, initial consultation.