An LLC is a type of business structure that treats owners like partners but gives them the choice to be taxed like a corporation. This form of business allows for flexibility in ownership and management. The owners of an LLC are also called its members. These members share in all of the profits and losses of the company as the owners of a partnership would. Once the owners have decided how they would like to be taxed, managed, and organized, they will spell it all out in an operating agreement.
Most new business owners will choose the LLC form of business in order to protect their personal assets from liability in case the business fails and to benefit from being taxed as a disregarded entity. The main advantage to an LLC is in the name: limited liability protection. Owners’ personal assets can be protected from business debts and lawsuits against the business when an owner uses an LLC to do business.
An LLC can have one owner (known as a “member”) or many members. Setting up a limited liability structure will shield your personal assets. If someone decides to sue your business, they cannot go after your personal assets with an LLC structure. You are protected from any judgments that go against your business. If your business doesn’t have enough assets or liquidity to pay the judgment, nobody can force you to dip into your personal assets to cover the shortfall.
With an LLC, you have ultimate flexibility in setting up your business’s management team structure. Many LLCs are member-managed, which means the day-to-day responsibilities are handled by the owners. Filing taxes as a single member LLC is much simpler than corporations or multiple manager LLCs. Most single member LLCs are considered "disregarded entities", meaning that you’ll be taxed like a sole proprietorship. In this case, the business won’t need to file a separate tax return, but you will report your income and expenses on Schedule C of your individual tax return. This allows you to avoid the issue of double taxation that can occur with a C Corporation and allows you to simplify tax filings as much as possible.
What is the hierarchy in an LLC?
There isn’t a specific mention of hierarchy in the provided text, but it does note that an LLC can be member-managed where the members (owners) handle the day-to-day operations.
What is the best management structure for an LLC?
The best management structure for an LLC depends on the specific needs of the business. The text indicates many LLCs are member-managed, which could be considered a suitable approach for owners who prefer to be directly involved in managing the day-to-day operations.