A limited liability company is a type of business entity that provides the business owner with liability protection. The types of liability that might be protected by a limited liability company, or LLC, might include lawsuits, debts, and other financial issues that might arise while running your business. Basically, if your LLC is set up and run correctly, then no one will be able to get your personal assets due to problems within the company.

Limited liability is an attractive feature for a lot of business owners because it reduces the risks associated with running a business. For example, if someone slips and falls in your retail shop, and they try to sue you, they would only be able to get to the money owned by the company, not the money you personally own. This type of protection is similar to the protection you’d get from having a corporation, but running a corporation can be expensive for a number of reasons. The limited liability company is generally less expensive to run because complying with state laws is simpler for LLC’s, and because taxes can be simpler.

LLC’s are state entities; every state has an LLC structure that provides the liability protection described above. By state entity, I mean that the federal government doesn’t see the LLC quite like a normal corporation. When you go to file for your EIN (Employer Identification Number), you are telling the IRS what type of business you are, so the IRS knows how you should be treated for tax purposes. There’s no option to be treated as an LLC. Instead, you can choose to be taxed as a pass-through entity, or you can be taxed as an S-Corporation.

Corporations get taxed twice – once for the business and once for the owners. It doesn’t necessarily mean that you’ll pay more as a corporation than if you were a pass-through entity, but it’s usually more complicated and can mean additional costs in hiring an attorney or accountant to help you pay your taxes. However, if you choose to be a pass-through entity, then the IRS doesn’t tax your business, they’ll tax you on the money you make from the business as an individual: only you get taxed instead of both you and the company.

So if you opt for an LLC, you not only get to protect your assets from liability, but you also have the option to avoid double taxation. The right option for you isn’t always obvious, but hopefully this article will help you get started.

Check out the table below with the laws for limited liability companies across the country.

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