Limited Liability Company Flashcards, test questions and answers

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What is Limited Liability Company?

A limited liability company (LLC) is a type of business structure that provides the limited liability of a corporation while allowing the company to be taxed as if it were a partnership. In other words, LLCs are companies where owners’ personal assets are protected from any debts or legal issues the business might incur. The limited liability also means that if one or more individuals own an LLC, they can only be held liable for their portion of the LLC’s debts and liabilities.The primary advantage of an LLC is that its owners have limited personal liability for any debts or obligations incurred by the business. This means that creditors can pursue only the assets owned by the LLC to satisfy their claims and cannot go after individual members’ personal assets. This also makes it easier for members to transfer ownership interests without having to worry about being personally liable for any new liabilities created by incoming members. Additionally, there is no maximum number of members an LLC can have, making it easy for family businesses or groups of friends to set up and manage a business together without having to go through lengthy bureaucracy like corporations do.Another benefit associated with forming an LLC is its flexibility in terms of taxation; depending on how many members there are in your company, you may choose from several different tax structures including sole proprietorship, partnership, S-corporation and C-corporation status. This flexibility allows owners to choose which route best suits their needs based on financial situation and goals something not offered with other types of entities such as corporations and partnerships. Additionally, in some states pass-through taxation is available which allows profits earned by the LLC to pass through directly onto each member’s individual tax return thus avoiding double taxation common among corporations. Pass-through taxation can offer major tax savings benefits when compared with standard corporate taxes applied at both state and federal levels. Overall forming an LLC offers several advantages over traditional corporate structures such as liability protection, flexible tax options, fewer formalities/paperwork requirements when setting up/operating businesses all while still offering attractive potential tax advantages not available at other forms of entities like partnerships/sole proprietorships etc.