Q:

What is an LLC business?

A:

Quick Answer

An LLC, or limited liability company, is a cross between a limited company and a partnership. It allows the business to practice as a limited company, but with the same tax benefits and flexibility as a partnership.

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Full Answer

LLCs are owned either by a sole person, two people, companies or other LLCs. Rather than referring to these people as owners, they are called "members." The IRS does not tax LLCs as a business. Instead, the profits and taxes pass through each member, and they report them on their personal tax returns, just as partnership owners do.

Each state has different requirements for forming an LLC. However, the process typically involves:

  • The business must have a name that is different to other businesses in the state. In addition, it cannot contain banned terms, like "bank."
  • Although not all states require an operating agreement, obtaining one for a multimember LLC is advisable, as it makes running the business smoother.
  • The LLC members also need to obtain any necessary licenses and permits. Requirements vary between states.
  • LLC members who intend to hire employees need to check what their state's regulations are before doing so.
  • In some states, it is necessary to announce the LLC by making a newspaper announcement. These states include New York and Arizona.
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