LLC stands for limited liability company. A limited liability company is a business that combines elements of corporations, partnerships and sole proprietorships. In an LLC, any entity can be an owner, including individuals, corporations, partnerships or trusts. The "limited liability" aspect stems from the protection an LLC organization offers its owners.
Limited Liability Companies
A limited liability company is an organization in which the assets of the owner are protected from any liability the business may incur. In an LLC, the owner cannot be held responsible for claims or debts made on the business by any creditor or outside entity. There is also no limit to the amount of owners a limited liability company can have.
A strong advantage of an LLC operation is that, while creditors cannot make claims on the personal property of the owner, the owner is still able to make a business profit or loss claim on his personal tax return. There are also fewer restrictions on an LLC than on a corporation. LLCs do not have to file annual reports and are allowed to have more flexible management structures, for example.
While the LLC offers limited liability, it does not offer complete protection for the owner. If the owner knowingly engages in illegal or ethically irresponsible business practices, he can be held personally accountable and will risk losing his assets. Also, the laws regarding LLCs vary from state to state, so depending on where the company was established, there may be higher fees than if the company was a sole proprietorship or a partnership.
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