If you like beer, you might be interested to know about a newly founded enterprise called Enjoy Beer LLC, calling themselves “a partnership of independent brewers uniting to grow our companies and celebrate beer culture.”
According to a BeerAdvocate article, the Boston based LLC “will create partnerships with additional top craft brewers who wish to preserve their local independence, while gaining shared resources in areas such as marketing, sales, purchasing, logistics, and finance in order to compete with large-scale corporate competitors."
What does LLC mean in a company name?
You may have shifted your focus from beer to wondering what does LLC mean. Or not. If you haven’t shifted yet, then let’s go. What does LLC stand for? LLC stands for Limited Liability Company and is a term that you may see often after the names of companies.
Other names and abbreviations that indicate a limited liability company are: L.L.C., limited company, LC, L.C., Ltd. liability company, Ltd. liability co., and limited liability co.
What is an LLC?
Massachusetts’ Limited Liability Company Act allows this type of company to “carry on any lawful business, trade, profession, purpose or activity.”
The U.S. Small Business Administration (SBA) provides some good information about what an LLC means:
“A limited liability company is a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.
The "owners" of an LLC are referred to as "members." Depending on the state, the members can consist of a single individual (one owner), two or more individuals, corporations or other LLCs.
Unlike shareholders in a corporation, LLCs are not taxed as a separate business entity. Instead, all profits and losses are "passed through" the business to each member of the LLC. LLC members report profits and losses on their personal federal tax returns, just like the owners of a partnership would.”
LLC meaning and history
According to The Uniform Law Commission (ULC), Wyoming became the first state to enact its own limited liability company act in 1977. In 1996, the Uniform Limited Liability Company Act [PDF] was approved by the ULC and recommended for enactment in all states. Most states did not adopt the model and the act was amended in 2006, 2011 and 2013, according to a recent summary [PDF]. However, it is a framework for states to follow.
The summary points out that in most every state, new LLC formations exceed that of corporate formations. Most states have their own statutes, so the rules may vary depending upon where you live and form an LLC.
An Internal Revenue Service (IRS) article states that there are few restrictions as to who can be a member. Members of a limited liability company can be one or more individuals, corporations, foreign entities and even other LLCs. However, generally banks and insurance companies cannot be LLCs. Certain states may have other restrictions as well.
As mentioned by the SBA, the IRS reiterates that members are taxed personally. A limited liability company is not a separate entity for tax purposes.
The big benefit of forming an LLC is limited personal liability. The SBA states that, “if the LLC incurs debt or is sued, members' personal assets are usually exempt. This is similar to the liability protections afforded to shareholders of a corporation. Keep in mind that limited liability means "limited" liability - members are not necessarily shielded from wrongful acts, including those of their employees.”
Public policy dictates that we want to encourage business formation and protect them to a certain extent. Yet, it also requires that a business whether an LLC or not, may not evade all responsibility. So if you celebrate your new LLC with some tasty craft beer, toast to your new venture and remember the designated driver.
Limited liability company FAQs
What does LLC mean when I see it after a company name?
LLC stands for "limited liability company," which is a special type of business structure that protects the owners' personal assets from business problems. When you see "LLC" at the end of a company name like "Smith's Bakery LLC," it tells you that the business owners have legal protection for their personal belongings. The LLC designation is required by law and must appear on all official business documents, contracts, and marketing materials to maintain this protection.
How is an LLC different from other types of businesses?
An LLC combines the best parts of corporations and partnerships while avoiding many of their downsides. Unlike a sole proprietorship, an LLC protects your personal assets from business debts. Unlike a corporation, an LLC doesn't require formal meetings, board of directors, or complex paperwork. For taxes, LLCs are usually treated like partnerships, meaning the business profits and losses go directly on your personal tax return instead of being taxed twice like corporations. This makes LLCs easier to manage than corporations but safer than sole proprietorships.
Who can own an LLC and how many owners can it have?
An LLC can have just one owner (called a single-member LLC) or unlimited numbers of owners (called members). The owners can be regular people, other businesses, corporations, or even foreign companies. You can run the LLC in two ways: either all the owners help make decisions and run the business (member-managed), or you can hire managers to run things while the owners just collect profits (manager-managed). This flexibility makes LLCs work well for everything from solo freelancers to large family businesses.
What are the main steps to start an LLC?
Starting an LLC involves four main steps that vary slightly by state.
- Choose a unique business name that includes "LLC" and isn't already taken by another company in your state.
- File paperwork called "articles of organization" with your state government (usually the Secretary of State) and pay a fee that ranges from about $50 to $500 depending on your state.
- Create an operating agreement that explains how the business will work, who gets what profits, and how decisions get made.
- Get an employer identification number (EIN) from the IRS for tax purposes and any business licenses your type of work requires.
How does LLC taxation work and what are my options?
By default, LLC profits and losses "pass through" directly to your personal tax return, so you don't pay business taxes separately. If you're the only owner, you report the income on Schedule C of your personal tax return, but if there are multiple owners, the LLC files Form 1065 but doesn't pay taxes. Instead, each owner gets a form showing their share of profits or losses to report personally. However, you can choose to have your LLC taxed like a corporation if that saves you money, especially on self-employment taxes. Many LLC owners work with accountants to figure out which tax option works best for their situation.
What do I need to do to keep my LLC's legal protection?
You must keep your business and personal finances completely separate to maintain your LLC's protection. This means using a separate business bank account for all company transactions, never mixing personal and business money, and always signing contracts as a representative of the LLC (like "John Smith, Member of ABC LLC"). You also need to file annual reports with your state (usually around $100), keep your business licenses current, and make sure "LLC" appears on all your business documents, invoices, and marketing materials. If you mix personal and business assets or don't follow these rules, a court might decide you don't deserve the liability protection and could go after your personal belongings.
When did LLCs become popular and why?
LLCs became popular in 1988 when the IRS decided to treat them like partnerships for taxes. Before 1988, the IRS taxed LLCs like corporations, which eliminated their main advantage of avoiding double taxation, and now they're the most popular choice for new businesses. People love LLCs because they get the personal asset protection of a corporation with the simple taxes and easy management of a partnership, plus they don't have to deal with corporate formalities like board meetings and complex paperwork.
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