The Basic Explanation Of What LLC Means
LLC is an abbreviation for Limited Liability Company. It is a business entity specific to the United States Of America. The LLC combines the pass-through taxation of a sole proprietorship with the limited liability that corporations enjoy.
An LLC is a legal entity that provides limited liability to its owners in the case of a lawsuit. In general, the owner’s assets are not liable in the case of a lawsuit. Considering the advantages of pass-through taxation and limited liability, the LLC is well-suited for companies with a single owner.
Why limited liability is important
Limited liability is essential because you want to limit your company’s financial liability to its holdings and the amount you have invested. You do not want your personal assets to be at risk of being seized in case of a lawsuit or debt collection.
If an LLC gets sued, the claimants are suing the LLC and not its owners or investors.
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If you are in business, there is always the chance that you could be sued or otherwise by a third party. An LLC keeps your personal assets safe in the unfortunate event of a lawsuit or debt collection.
Enjoy pass-through taxation
One of the main fears about forming a company for someone like a solo digital entrepreneur or a one-person service company is that the revenues will be taxed at both the company and the personal levels. This dreaded phenomenon is known as double taxation.
To avoid double taxation, the company’s profits must be able to pass through the company and be taxed as the personal income of the investors or owners. The taxation passes through to another tax return and is not taxed twice.
In essence, the income and expenses of the LLC are generally regarded as the income of the owner(s).
