What Is an LLC?
A limited liability company, commonly referred to as an LLC, combines the taxation benefits of a partnership with the limited liability of a corporation.
Instead of partners, LLC business owners are called members, and there can be several, or a single member. State law governs LLCs, and depending on the state, members can be people, other LLCs, or even corporations.
Pros and Cons of Forming an LLC
The biggest advantage of forming an LLC is that liability is not attributed personally to the LLC members. Whereas partnerships and sole proprietors are responsible for the company’s debts, LLC members enjoy limited liability absent fraud or criminal behavior.
Other advantages include:
- No annual meeting or record-keeping requirement
- Tax election, or the ability to choose pass through taxation for its members
Some disadvantages of embellishing an LLC include:
- The possibility of self-employment tax
- Limited lifetime; in some states, if a member dies the LLC may fall apart
- More costly to establish than a partnership
Despite the disadvantages, an LLC will provide ample room to grow a business to reach long-term goals, while avoiding the burden of full liability for its members.
The LLC Application Process
Now that you can successfully answer the question, “What is an LLC?,” you’ll likely want to know more about the LLC application process.
The application process begins by filing articles of incorporation with the Secretary of State. You will also need to choose a legal name for your company, which is usually handled by the Secretary of State as well.
You’ll then need to apply for an Employer Identification Number (EIN) for tax purposes, and with it you’ll be able to acquire the appropriate state or local permits and licenses specific to your industry.
LLCs can be a great tool for growing a business. The LLC application process is a bit more complex than that of other business types, but well worth the effort.