What is an LLC? (Limited Liability Company)

2/27/2023

In the United States, private businesses of all kinds are the basis of its economy, which is still the largest in the world, despite the fact that China has come quite close in recent decades.

Within the U.S. business system and at the legal and tax level, there are several figures for which an entrepreneur who wants to open a business can opt, and among them are the LLC or Limited Liability Companies, which we will see in this article what they consist of.

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What is an LLC?

A Limited Liability Company is a type of business and legal structure used to operate in the United States.

One of its main characteristics is that it protects its owners or partners against possible defaults or bankruptcies, since they would be liable with the company's property and not with their personal assets.

They combine characteristics of a corporation with those of a sole proprietorship or a self-employed worker.

What taxes does an LLC pay?

The taxation of a Limited Liability Company can be quite complicated since multiple factors are involved and, in addition to federal legislation, each state has its own taxes that may vary from one to another.

In addition, there are also differences between different types of companies and the industries in which they operate.

At the federal level, partners in an LLC can choose to pay taxes as if it were a corporation, which is taxed on profits as a single corporation, or as a pass-through entity, where each partner pays taxes based on his or her personal income.

If you want to learn more about the taxes paid by an LLC you can consult this guide, call the IRS phone number: 1-800-829-1040 or visit an IRS office near you.

How to create a Limited Liability Company in the United States?

The process of forming a Limited Liability Company may be different depending on the state of the union in which you want to create it.

The first thing to do is to choose a name and, from there, it will be necessary to draft a series of formalization documents of the company in which different details are established, such as:

Names and personal data of each of the partners.
Rights, duties and powers of each one.
Positions and responsibilities of each partner.
Percentage participation of each party.
Purpose for which the company is created: what type of business and work it intends to carry out.

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All this paperwork must be submitted to the corresponding state authority. For this purpose, the best thing to do is to turn to an advisor who will take care of all the paperwork so that you do not have to worry about anything, in exchange for a fee, of course.

Advantages of an LLC

The choice of this legal figure for the opening of a business in the United States depends on different factors. To make your choice easier, we will highlight the main advantages of a Limited Liability Company:

Limited Liability

As the name implies, the personal assets of the partners who are part of the company are protected in the event that the company goes bankrupt and cannot pay its creditors.

Simplicity

LLCs are much easier to set up and manage than a Corporation.

Various tax payment methods

As explained above, an LLC allows you to choose between paying taxes as a single entity or having each partner pay taxes on income received on an individual basis.

Corporate flexibility

A Limited Liability Company can be formed by a single member or by multiple partners. In addition, these partners may be individuals or other companies that acquire an interest.

Prestige

An LLC always offers greater status and credibility than a self-employed freelancer.

Access to financing

Banks and credit institutions allow access to larger loans and with more favorable conditions to a company than to an individual. And if it is an LLC even better than a professional worker.

Disadvantages of a Limited Liability Company

Cost

Forming and managing an LLC is more expensive than running a business as a self-employed person. In addition, consulting fees are usually higher.

Paperwork and management

An LLC involves more paperwork and greater control of income and expenses. In addition, filing tax returns is more time-consuming than for a self-employed person.

It is more complicated to find investors

Compared to corporations, Limited Liability Companies have the disadvantage that the shares are more difficult to sell for the partners who decide to invest, making them think more about betting their money in the project.

Types of LLCs

Domestic LLC	It is one that operates only within the U.S. state in which it was created.
Foreign LLC	In order to also operate in a state other than the one in which it is incorporated, the corporation must register as a Foreign LLC in that new state.
Professional LLC	It is one that performs a function for which some of its members must have specific training or professionalization.
Serial LLC	This is when there is a parent LLC on which multiple other businesses depend, which are protected by the limited liability of the parent company.