What is an LLC and what does it do?

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Learn what is an LLC

A person is confused about what is an LLC, what LLC stands for, and the reason they exist.LLC means Limited Liability Company.

A Limited Liability Company, most commonly called an LLC, is a legal business structure that protects your personal assets (your home, car, and personal bank accounts) in the event your company is sued.

An LLC is most often used to operate a business (you can have multiple businesses in one LLC), but LLCs can also be used to take title to assets.

For example, an LLC can be created to own real estate (when should I form an LLC for real estate?), vehicles, boats, and aircraft.

LLC University® video: What is an LLC?

What is an LLC? - Form an LLC (1/11)

(After you watch this video, check out our “What is an LLC” Youtube playlist)

The owners of an LLC are called “Members”

The owners of an LLC are called “Members“.

An LLC can be owned by one person (called a Single-Member LLC).

Or an LLC can be owned by two or more people (called a Multi-Member LLC).

The LLC is created by a filing form (called an LLC Articles of Organization) with your state’s Secretary of State office, or similar government agency, and paying a one-time filing fee.

You can find out how much it costs to form an LLC in each state by clicking here: LLC University: LLC filings fees by state.

Why do people form an LLC?

The primary reason to form an LLC is for personal asset protection.

By forming an LLC you create a “protective wall” between your business and your personal assets.

Your personal assets include everything that you own: your home, cars, trucks, bank accounts, investment properties, boats, jewelry, etc.

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Northwest ($39 + state fee) or LegalZoom ($149 + state fee)

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A creditor cannot go after your personal assets

If your LLC is sued, creditors can only attack the assets of your LLC to settle those business debts and liabilities.

Your personal assets are safe and secure.

They are not considered a part of the business.

Again, without forming an LLC, your personal assets are at risk if your business is sued.

Speaking the (correct) LLC language

There are two common mistakes people make when talking about LLCs:

“I want to form a Limited Liability Corporation.”

You cannot form a Limited Liability Corporation. There is no such thing. An LLC is a Limited Liability Company.

“I’m going to LLC myself.”

Again, this is incorrect. You cannot do that. You can’t “LLC yourself”.

But, you can form an LLC for your business. An LLC is “separate and apart” from you. It is not you.

You form the LLC. Then you own and manage that LLC.

It’s important that you understand the difference in these terms so you don’t sound like an idiot and can speak intelligently about your business.

What’s better: an LLC or a Corporation?

A lot of people ask us if they should form an LLC or form a Corporation?

Let’s discuss the major differences.

LLCs don’t have to elect a board of directors; Corporations do.

LLCs don’t need to hold board meetings; Corporations do.

LLCs don’t have to keep records of all their meetings; Corporations do.

LLCs are not subject to double taxation; Corporations are.

LLCs can distribute profits however they want; Corporations can’t.

In short, LLCs are the most popular and the most flexible business structure for business owners, entrepreneurs and real estate investors.

LLCs are affordable to set up

You’ll pay a one-time filing fee to form your LLC.

The setup fee is cheap compared to forming other types of business entities (like a Corporation).

Losing your personal assets is much more expensive than setting up your LLC.

And even if your state has higher filing fees, they are well worth the assurance of knowing your assets are fully protected.

LLCs are low maintenance

Once your LLC is setup, there are only a couple requirements to keeping it active.

The first requirement is sending your LLC Annual Report to the state.

(Note: Not all states require Annual Reports.)

And the second requirement is to file your state and local taxes.

Other than that, the only additional “work” you’d need to do is file a simple form if you change your address.

LLCs are easy to maintain.

An LLC can be used to run multiple businesses

You can use one LLC for multiple business activities. Or you can create multiple LLCs.

For more information, please see can you have two businesses under one LLC.

How do I form an LLC?

1. Pick a name for your LLC.

2. Prepare your Articles of Organization, Certificate of Organization, or Certificate of Formation. File by mail or file online with the Secretary of State and pay the state filing fee.

3. Wait a few business days for your LLC to be approved.

That’s how to form an LLC. Yes, there are few more steps, like Operating Agreement, Federal Tax ID Number (EIN), and Annual Report, but these are the basic steps to getting your LLC started.

If you’re ready to get started, select the state where you are forming an LLC:

Matt Horwitz
Matt Horwitz
Matt Horwitz is the leading expert on LLC education, and has been teaching for 15 years. He founded LLC University in 2010 after realizing people needed simple and actionable instructions to start an LLC. He's cited by Entrepreneur Magazine, Yahoo Finance, and the US Chamber of Commerce, and was featured by CNBC and InventRight.
 
Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.

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22 comments on “What is an LLC”

Disclaimer: Nothing on this page shall be interpreted as legal or tax advice. Rules and regulations vary by location. They also change over time and are specific to your situation. Furthermore, this comment section is provided so people can share their thoughts and experience. Please consult a licensed professional if you have legal or tax questions.

  1. Hey Matt
    I’m planning to start an LLC that I will use to hold real estate in northern Michigan for rental purposes. For liability purposes do I need to open a separate LLC for each property? So if someone gets hurt at property A they can’t go after the assets of properties B,C, and D. Is there a way to do this with one LLC?

    Thanks
    Keith

    • Hi Keith, how many properties per LLC is not black and white. It’s personal preference and comes down to how you structure your assets (how valuable those assets are) and a few other factors. You could have one LLC with multiple properties; just get adequate insurance. Or you could form a separate LLC for each property (again, get adequate insurance). If someone gets hurt at a property, they usually go after the easiest money first (insurance money). For stronger asset protection, multiple LLCs has a slight benefit.

      But – as an example – if you have 8 houses, all with $50k of equity, you also have to think about setting up 8 LLCs, paying 8 LLC annual reports every year, opening 8 bank accounts, getting 8 EIN numbers, etc. So there’s a tradeoff between the number of LLCs and sanity (and how much you’re on top of the details and logistics). As another example, if you had 8 million dollar+ properties with no (or low) mortgages, multiple entities could be a prudent route. Hope that helps.

  2. Hi Matt,
    I am an employee for a LLC and I have my own LLC. My boss asked me to become a partner of her LLC.
    What is the best solution? Use my LLC and partnering up with my boss LLC forming a Partnership (1065) with 2 members LLCs?
    What will I be? An employee and a partner?
    I am not completely clear here.
    Thank you for your help.
    CB

    • Bases on your tone, I’d first ask, do you want to become a Member of this LLC lol? There’s not a major advantage, that I can see, by having your LLC become the Member (instead of yourself). It’s a lot more complicated. But either way, if your LLC or yourself became a Member, you could no longer be an employee of your boss’s LLC (unless the LLC was taxed like an S-Corporation). Hope that helps a bit.

  3. I work for a independent contractor for deliveries. They don’t take taxes out or pay for mileages. Would I be able to get a LLC for my vehicle as a work only vehicle? So I can get compensated for some gas and get back fired with taxes.
    Not sure if that made any sense.

    • Hi AM, I recommend speaking with an accountant. You should still be able to write off certain expenses without the need for an LLC.

  4. Hi

    We are running an online business in US and wanted to get the company registered as an LLC in Delaware ,but we are physically located in UK but need to get the EIN number and a US bank account to avoid currency conversion charges

    Do we have to pay taxes in home country since we are forming LLC in Delaware and paying taxes there ?

    Can you advise what’s the taxes we need to pay as a non resident online business in Delaware ?

    Also can we do annual reports and pay taxes by ourself or do we have to hire someone in USA for that ?

  5. I am starting a Wholesaling business in New York. Is it prudent (cost effective and privacy enhancing) to create a Holding company in Wyoming that is the parent company or owner of a NY LLC? And, can they be created at the same time, or do I have to create the NY LLC first?

    • Hey Sabrina, you can certainly form a Wyoming LLC that owns your New York LLC. If you went that route, you’d form the Wyoming LLC first. Hope that helps.

  6. Hello Matt,

    I have formed an LLC in California, I do have operating agreement, Article of Organization and IRS EIN, I didn’t run any news paper Ad. Do I need to run an ad? is it the requirement to complete registration or not?

    Thank you.

    • Hi Ata, no, you don’t have to run newspaper ads for a California LLC. Hope that helps.

  7. Are there any small business classes from which i can start a small business like an llc

    • Not that I’m aware of. However, if you go to our homepage and then select your state, we have LLC filing instructions. Hope that helps.

      • I am trying to buy 25% ownership in a single member florida llc, who had 100% now.
        How can he sell me 25% of hos share.

        Thanks

        • Hi Moe, you guys would want to have a Sale of LLC Membership Interest form signed, amend the Operating Agreement, and amend the Florida Articles of Organization. If you need help, you can hire a local business attorney. Then make sure to file a 1065 Partnership Return with the IRS beginning in 2024.

  8. I live in CT but can I form LLC in Delaware? Is Delaware still the most favorite place to incorporate?

  9. Hi Matt,

    My family has just formed an LLC for some vacation property we own. We did it through an expensive lawyer. I found your website very helpful in understanding a lot more about LLCs, and not running up $50 bills with every question to the lawyer. Thank you!

    I was wondering if you could answer a question about home insurance. Right now the cabin (on a remote island with no street address) is insured by my father and his wife. The cost is $600/yr. Our neighbors with similar property and an LLC as well lost their insurance when their insurance company closed. They had a heck of a time finding someone to insure them at all as there is no street address, just parcel numbers. Their yearly rate went to $5000.00! So my question is, can I leave the cabin’s insurance in my dad’s name for now or does it HAVE to be switched to LLC? Would the company refuse to pay any claim as now the LLC owns the cabin? Would my father be personally libel if something happened to someone (tree falls on them in cabin and leg cut off, for example) as he is the insurance carrier?

    • Hi Dr. Leeways, I’m glad you’re received a lot of value from our website :) One thing to note is that you said “my family has just formed an LLC for some vacation property we own”. ‘Just forming’ an LLC for real estate that is already owned likely means that the person that holds title to the property is not the LLC (it’s you and/or your family members). So if you want the property to be owned by the LLC, you’ll need to transfer title to the LLC. A local real estate attorney and/or title company will be able to assist. Also, check out when to form an LLC for real estate. Also, the fact that there’s not a physical street address shouldn’t matter much as the deed likely includes a survey which paints out in detail the property’s location and size. Also, I would assume companies that insure properties in that area are familiar with the way things work in remote locations. So while I can’t answer whether or not you should switch your cabin’s insurance, I hope the information I provided helps lead you to the correct path of action.

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