Business structures offering limited liability protection and pass-through taxation, an LLC (limited liability company) are separate entities and thus the owners cannot be personally held responsible if the business has any debts or liabilities. The owners of an LLC are called members who are protected from all the personal liabilities of the LLC.
If there are any business debts of an LLC, the creditors cannot go after the members and pursue their personal assets like it happens in the case of sole proprietors and general partners of companies. The members of an LLC need not only be individuals, they can be partnerships, trusts, or corporations. Plus there is no limit on how many members can exist in an LLC like there is a maximum limit on the members of corporations, thus making the best LLC services more popular.
Corporations are managed by BOD and not shareholders whereas the LLC can be managed by its members or they can choose to elect a group for management purposes. Also at the business entity level, the LLCs do not pay taxes. The income or loss gets passed through the owners which is later reported as their personal income and tax returns are filed on the same. The tax is paid on an individual level unlike Corporations which are taxed at the business entity level.
As compared to sole proprietorships, general partnerships, and corporations, LLCs have few state-imposed compliance requirements and formalities. But it costs a lot more to form and maintain an LLC than a sole or general partnership. There are formation fees, states ongoing fees, franchise tax fees and other fees levied by the states. Plus it is quite difficult to transfer ownership in an LLC. One needs approval from all the members to add or alter ownership percentages.
