- February 28, 2024
- All About LLCs
A Limited Liability Company (LLC) is a cross between a Corporation and Sole Proprietorship. It has the benefits of each. There are currently over 30 million in the United States with over 5 million new LLCs formed each year and growing steadily. The concept was first adopted by Wyoming in 1977 and by 1992 all Fifty States had adopted the LLC as a legal entity.
The uniqueness of an LLC manifests itself in three ways.
- Asset Protection
- Tax Status
- Regulations
Asset Protection
LLCs provide asset protection. This comes in two flavors, the inside attack and the outside attack.
In an inside attack, the LLC protects its owners from any liability arising from a lawsuit against it. Claims against the LLC can only be settled from the assets of the LLC and not from the personal assets of any of the members.
In an outside attack, the LLCs assets are protected from any personal claims against its members. If a member of an LLC is sued for something not related to the LLC, the claimant will only be able to take the member’s personal assets. They will have no claim to any assets held by the LLC.
Tax Status
An LLC is a Pass Through Entity (PTE) from the point of view of the IRS. A corporation pays income taxes on the corporate level for any profits earned and when it distributes profits to the shareholders they pay taxes on the dividends. This results in double taxation. An LLC is not taxed at all. Rather the profits flow directly to the members, meaning they pay taxes only one time. If there are multiple members of the LLC each member is taxed as a partnership interest.
Regulations
Corporate compliance and regulation can be quite cumbersome in its structure, management, decision making and reporting requirements. Not only does an LLC cut out much of this, but it also has an Operating Agreement in which you can rewrite many of the rules to your convenience.
To sum this up, LLCs were created to give small businesses the protection it needs in order to enter in business with more protection, yet still maintain much of the flexibility and ease of operation that a small business needs to thrive without adding overhead work.
Note: Information provided here is for general knowledge only, consult a lawyer or CPA in your state for specific legal advice.
Tzvi Weiser is an LLC specialist with a rich business background, serving in executive positions in real estate, hi-tech and international marketing. He was a New York lawyer and has an MBA and accounting degree.