Glossary · Legal & Admin
What is Limited Liability Company (LLC)?
Definition
A limited liability company (LLC) is a US business structure that legally separates the owner's personal assets from the business's debts and liabilities while keeping simple tax treatment.
Why it matters
An LLC is popular with small businesses because it offers liability protection without the complexity of a corporation. Owners are called members, and profits generally pass through to their personal tax returns.
Forming one involves filing articles of organization with your state and paying a fee, which ranges from roughly $50 to $500 depending on the state, plus possible annual fees. A consultant making $70,000 who forms an LLC still reports income personally, but if a client sues the business, personal assets like a home are generally better protected, as long as the LLC is run properly.
Protection can be lost if you mix personal and business funds. Rules and costs vary by state; check with an accountant or attorney before choosing.
Common mistakes
- !Using the business account for personal expenses, which can weaken liability protection.
- !Forming the LLC but skipping annual reports or fees required by the state.
Frequently asked questions
What is Limited Liability Company (LLC)?
A limited liability company (LLC) is a US business structure that legally separates the owner's personal assets from the business's debts and liabilities while keeping simple tax treatment.
What mistakes do beginners make with LLC?
Using the business account for personal expenses, which can weaken liability protection. Forming the LLC but skipping annual reports or fees required by the state.
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