What is an LLC?
Like a corporation, a limited liability company (or "LLC"), is a separate and distinct legal entity. This means that an LLC can have its own tax identification number and bank account. The primary advantage of an LLC is that its owners have "limited liability," meaning that, under most circumstances, the owners are not personally liable for the liabilities and debts of the LLC. For example, if an LLC is forced into bankruptcy, the owners will not be required to pay the LLC's debts with their own money. If the assets of the LLC are not enough to cover the debts and liabilities, the creditors generally cannot look to the owners, managers or officers for relief.
An LLC can be taxed either as a "pass-through" entity, like a sole proprietorship or partnership, or as a regular corporation. By default, an LLC is taxed as a pass-through entity, where the owners just pay taxes on the profits of the LLC at their individual
tax rates. This is different from a regular C Corporation, which pays a corporate tax on its net income before distributing profits to the stockholders (the owners) as dividends. When the corporation distributes profits, the stockholders
also must pay income tax on these dividends. Most LLC owners choose to have the profits pass-through so that taxes are only paid once on the profits.
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