What Is a Limited Liability Company (LLC)?

Starting an LLC is the logical next step for many business owners. Explore benefits and drawbacks of the limited liability company, a common legal structure.

If you're starting a small business, you may want to create a separate legal entity for the new company. You can select from several different business structures, each with unique pros and cons. A limited liability company, or LLC, is one of the most common business entities because it provides tax advantages and shields your personal property from liability. 

In this comprehensive guide, we answer your LLC questions so you can decide if it's the right structure for your business.


What Is an LLC?

An LLC is a legal business entity that combines aspects of a sole proprietorship or partnership with elements of a corporation. Like sole proprietorships and partnerships, LLCs have beneficial pass-through taxation. 

Under this tax structure, each owner (known as a member in an LLC) reports a designated share of profits and losses on their annual tax return. Conversely, corporations get taxed twice, both as businesses and at the individual owner level.

As the name suggests, an LLC limits personal liability for the financial obligations of your business. In other words, if someone sues the company and wins or the business accumulates significant debt, you won't have to sell private assets like your home or vehicle to cover the cost. Corporations also provide personal liability protection, but sole proprietorships and partnerships lack this important feature.

Who Should Form an LLC?

You may want to form an LLC if you want to protect personal assets from business debts. When you create this type of business entity, you limit your financial loss to the amount you invest in the business. 

While almost any type of company can benefit from becoming an LLC, this structure is especially common among:

  • High-risk businesses that have significant loss potential if a lawsuit occurs
  • Side businesses that expand into full-time enterprises
  • Companies on a limited budget
  • Small businesses that want to avoid extensive operational requirements

You can form a member-managed LLC if you and the other owners plan to run the business. You can also hire professional managers to handle the daily LLC operations.

Many states also recognize professional LLCs, sometimes called PLCs or PLLCs. You may start this entity if you practice as a licensed professional such as an architect, engineer, accountant, attorney or health care provider.

What Do You Have to Do to Form an LLC?

In most states, LLC registration requires an Articles of Organization form. You can typically submit this document online along with the associated fee. Most states also allow you to fax or email this form. It generally includes:

  • The name of your LLC, which must be unique and meet other requirements in your state
  • Information about the purpose of the LLC
  • The name and address of your registered agent, a person or business with a physical address in the state who agrees to accept legal process service for your LLC
  • The names and contact information for all members of the LLC

The Benefits of Registering Your Business as an LLC

Main advantages of the LLC structure include: 

  • Flexibility. You can start an LLC whether you're the only member or you have several partners. This type of business entity can even have hundreds of members if you decide to sell shares in your company. The LLC structure suits businesses of all shapes and sizes.
  • Easy setup. In most states, you just need to fill out Articles of Organization and pay the fee to start an LLC. 
  • Limited operational requirements. Most states have minimal requirements for LLCs to maintain annual registration. Corporations, on the other hand, have to submit detailed annual reports, hold board meetings, retain records and otherwise meet extensive mandates.
  • Simple structure. Unlike corporations, LLCs don't have to appoint a board of directors, elect officers or hold shareholder meetings.
  • Limited liability. You don't risk your personal assets when your business faces a costly legal judgment if you have an LLC in place.
  • Tax advantages. LLCs avoid the double taxation issue that affects corporations. Instead, each LLC member pays taxes on their share of the company's income on their individual tax returns. Unlike corporations, LLCs don't have to pay business tax on top of individual income tax. Your LLC can also elect to be taxed as a traditional or S corporation depending on the most beneficial arrangement for your business.
  • Professional appearance. Even if you're the only member of your LLC, you can build trust among your clients by registering an official business structure. 

The Disadvantages of Registering Your Business as an LLC

You may want to consider these possible disadvantages of LLC registration before moving forward:

  • Lack of perpetuity. In some states, you have to dissolve an LLC if any of the members files for bankruptcy or dies.
  • Expense. If you're a sole proprietor, establishing an LLC can be costly. However, higher-income individuals in this situation often find they can save money by starting an LLC and electing S-corp taxation.
  • Limited opportunity to seek outside investors. Most venture capital firms exclusively fund corporations, although it's possible to get LLC funding from other sources such as private investment funds.

What's the Difference Between an LLC and a Partnership?

If you're deciding between an LLC and a partnership, familiarize yourself with the differences between these business entities:

  • Number of owners (members). An LLC can have just one or hundreds of members. Conversely, you need at least two people to form a partnership.
  • Personal liability. Standard partnerships don't protect your personal assets from business debts and lawsuits. In other words, if someone sues your business and wins a substantial judgment, you'll have to find a way to pay even if that means taking on private debt or selling your home. However, some partnership subtypes do limit personal liability.
  • Structure. Most states recognize only one type of LLC and several types of partnerships, including general partnerships, limited partnerships, limited liability partnerships, and limited liability limited partnerships.
  • Formation. General partnerships don't register with the state as a separate business entity. Instead, the partners agree among themselves about rights, responsibilities, management, and shares of profits and losses. LLCs have to register with the state by submitting articles of organization.

What's the Best Way for a New LLC to Accept Payments? 

When you partner with Pay.com to accept payments for LLC products and services, you'll have the peace of mind that comes from secure, streamlined transactions. We provide the seamless, reliable user experience your customers expect from online checkout, with benefits like:

  • Personalized checkout process so you can match your branding and logos as well as add security badges to give your customers peace of mind
  • The ability to accept many different methods of payment, another factor that engages potential customers and encourages conversion
  • Quick-start solutions so you can start accepting payments almost immediately, with no coding experience required
  • Advanced API plug-ins that integrate with a diverse range of existing ecommerce solutions

Like the LLC structure, Pay.com has the flexibility to fit businesses of all sizes and scale in tandem with your company's growth. Click here to get started now!

The Bottom Line 

If you think an LLC might be right for your business, it's time to investigate the specific requirements for your state. Fees, set-up process and naming guidelines all vary by location.

Pay.com has the expertise you need to take the stress out of payment processing. Whether you're an ecommerce expert or new to the world of accepting online payments, we have the tools you need to succeed when selling your products and services through a new LLC.

Click here to create your Pay.com account now.


How can an LLC accept multiple payment methods?

Pay.com provides full-service payment solutions for your LLC, including the ability to accept multiple payment methods. Your customers can use credit cards, debit cards, digital wallets and other options based on your selections. We shield every transaction with high-level compliance with the Payment Card Industry Data Security Standards (PCI DSS). Click here to get started now!

What is the point of forming an LLC?

Limited liability is the main reason most LLC owners choose this entity. It protects your personal property from business debts and financial obligations such as lawsuits. Other LLC advantages include beneficial tax treatment and simple start-up and operation compared to the requirements for corporations.

What is the UK equivalent of an LLC?

The UK has a few business structures that are similar to LLCs in the US. A private limited company limits owner liability to their ownership percentage. UK entrepreneurs can also start a limited liability partnership. This type of business structure limits the liability of the business's partners when someone sues just one of the owners.

Can a small business be an LLC?

Small businesses can register as LLCs. In fact, you can even be the only owner of your LLC if you plan to operate alone (or with hired staff rather than partners). It's a popular structure for small businesses because of its low costs, tax advantages, liability protection, and relatively easy set-up and operating requirements.

How much does it cost to form an LLC?

LLC filing fees range from just $40 in Kentucky to $500 in Massachusetts. Most states charge around $50 to $250 to form an LLC. You may also have to pay an annual registration fee or yearly LLC taxes depending on location. Hiring an attorney to help you complete your LLC paperwork represents an additional cost if you decide to go that route.

Meet the author
Andrea Miller
Andrea Miller has been a writer and editor for more than two decades. Specializing in business and finance, she has written for some of the major websites in the financial sector. Outside of work, she spends most of her time with her family and enjoys hiking, yoga, and reading.
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