The Law

Limited liability companies (or LLCs) are business entities that streamline some of the best parts of the corporate and partnership structures in a simplified, less complicated format. Most people decide to create an LLC because of the limited liability protections they provide; however, there are some other important advantages to note as well.

Limited Liability Protection

In terms of liability protection, most people are aware that corporations protect their owners from debt collection in bankruptcy proceedings and other lawsuits. However, the corporate model is not always the best fit for a business owner and this is where an LLC might be useful. For example, the LLC allows a sole owner to operate his or her business as if it were a sole proprietorship, while benefiting from limited liability protection. Unlike a sole proprietor, though, the LLC owner cannot be held liable in business lawsuits, which can only seek the assets of the LLC itself.

Ownership Flexibility

In terms of ownership, LLCs can have one or more owners. Owners might include corporations, partnerships, individuals, banks, trusts or other LLCs. Perhaps the owners of two law firms would like to start a law business together to handle a new area of business, but they do not want the activities of the new business to jeopardize the assets of their two separate law firms. Both owners want to control their contributions to the new business and codify the way they will share profits, so they create an LLC and record all their profit sharing arrangements and investments regarding the new LLC in its operating agreement.

Tax Filings

In terms of taxes, an LLC's profits and losses are reflected on the personal income tax filings of the LLC owners. If the owner is a person, the taxes will be recorded on the individual's personal taxes. If the owner is a corporation, the taxes will be recorded on the corporate taxes. In other words, unlike a corporation, which is responsible for its corporate income tax filings, the LLC as a business entity does not pay taxes itself.