An LLC or a Limited Liability Company is a business entity, much like a corporation. Like most business entities, an LLC protects its owners, also known as members, from personal liability that arises from the business. An example of personal liability protection would be a “slip-and-fall” in an LLC business. The incident would leave the LLC business and its assets open to a lawsuit; however, the owner’s home and the owner’s retirement plan would not likely be open to liability.
Although an LLC is a business entity, an LLC does not pay the Corporate Tax. Instead, an LLC is considered a “pass-through tax entity.” The profits and losses of the business are taxed proportionately to an owner’s or member’s interest in the LLC. If an LLC is successful, it is wise for the owner to speak with a Certified Public Accountant (CPA) because of the percentage of tax one would be subjected to at the different income tax brackets.
Additionally, an LLC, much like a corporation, has its own unique kind of “decision makers” or management. For an LLC, it may have either a manager-managed LLC or a member-managed LLC. A “manager-managed” LLC requires at least one LLC Owner (Member) to take on all of the management of the LLC. The other owners, those who are not managers, can focus on other aspects of the LLC. Alternatively, every member of the LLC may manage in a “member-managed” LLC. A member-managed LLC may be beneficial for smaller LLCs, but may become very difficult when their are too many partial-owners.
If you have any questions or concerns, you should speak with a local Attorney.
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