What Is a Limited Liability Company?

The limited liability company (LLC) is a relatively new business structure but already vastly popular for small businesses in the U.S. It is a cross between a corporation and a partnership or sole proprietorship. Essentially, an LLC carries the limited liability advantages of a corporation but operates with the flexibility and tax obligations of a partnership or sole proprietorship.

An LLC Offers Advantages Usually Reserved for Corporations

If you feel that you want some of the advantages that corporations have over sole proprietorships and partnerships, such as limited liability, the increased ease of adding investors, the appearance of a more professional business organization, and more, then chances are the LLC structure will be a good bet for your small business.

As with a corporation, you form an LLC with a state government. You don’t necessarily have to form it in the state you are doing business in, but if you form your LLC in Delaware, let’s say, and you are doing business in Massachusetts, then you must register as a “foreign” LLC in Massachusetts and you will be subject to income taxes there.

I have formed LLCs not just for business ventures but also for investment vehicles for multiple people. When LLCs first became popular some attorneys were cautious about recommending them until the structure became more proven, but today those concerns are generally gone and the LLC is very widely used in the U.S.

Unless you’re starting a very tiny business with no liability, an LLC is the first structure that I would consider. However, I suggest that you consult with an attorney and your tax accountant before you select a legal structure for your business.

About Bob Adams

Bob Adams is a Harvard MBA serial entrepreneur. He has started over a dozen businesses including one that he launched with $1500 and sold for $40 million. He has written 17 books and created 52 online courses for entrepreneurs. Bob also founded BusinessTown, the go-to learning platform for starting and running a business.