Purpose of LLC Formation and Liability Protection
A limited liability company (LLC) offers liability protection by separating the business from the owner. All 50 states allow Single-Member LLCs and this is the most popular type of LLC formed in the United States. In a sole proprietorship, the owner is personally liable for any debts or obligations of the business.
Ownership and Management Structures of LLCs
Limited liability companies (LLCs) can choose to be treated as a corporation by the IRS, whether they have one or multiple owners. Owners of a multi-member LLC can manage themselves as a group or establish a single manager to govern. These two structures are called “member-managed” and “manager-managed." Multi-member LLCs have two or more owners with equal management rights.
Tax Treatment for Single-Member LLCs
A single-member LLC has one owner. The IRS treats it as a disregarded entity, and its income and losses pass through to the owner’s tax return. All 50 states allow single-member LLCs, providing personal asset protection and tax benefits compared to sole proprietorships.