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What is an LLC?

A limited liability company, commonly called an LLC, is a popular business structure because it combines the benefits of multiple business types into one. LLCs have the tax advantages of a sole proprietorship or general partnership while also providing the personal liability protection of a corporation. For a more detailed answer,

LLC formation benefits

An LLC is a separate legal entity, meaning that it and the owners (who are called “members” in an LLC) are not the same in the eyes of the law. If the LLC is sued or goes into debt, the members’ personal assets (savings, home, cars, etc.) are usually not at risk.

As with a corporation, forming an LLC does require you to pay a fee and file paperwork with the state, but the management of an LLC allows for much more flexibility than a corporation with less paperwork and fewer reporting requirements. LLC members can draft an LLC operating agreement to customize the rules for managing the company.

LLCs also have tax advantages. By default, LLCs are taxed like sole proprietorships or general partnerships. This usually means that profits are not taxed at the business level before being distributed to the members, who only pay income tax from their share of the LLC’s profits on their personal tax returns. More than 90% of our customers choose to form LLCs when they purchase one of our business formation plans.

Explore Our Packages

Our tailored packages address your new business’s compliance, filing speed, and support needs—conveniently all in one place.

Starter

Includes all mandatory state filings with a guarantee of accuracy.

Free + state fees
  • Standard Filing Service
  • Guaranteed 100% Accuracy
  • Worry-Free Compliance Offer**
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Pro

Comprehensive solutions to start, protect, and maintain your LLC’s compliance throughout the year.

$199.00/yr + state fees
  • Expedited Filing Service
  • 100% Accuracy Guaranteed
  • Compliance Made Easy
  • Customized Operating Agreement
  • Employer Identification Number (EIN)
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Premium

Access advanced tools and expert guidance to launch and expand your business online.

$299.00/yr + state fees
  • Expedited Filing Service
  • 100% Guaranteed Accuracy
  • Hassle-Free Compliance
  • Customized Operating Agreement
  • Employer Identification Number (EIN)
  • Business Document Template Library
  • Domain Name with Privacy Protection
  • AI-Powered Website Builder
  • Professional Business Email Address
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*Processing times are based on receipt of complete and accurate information.Processing times do not include Secretary of State processing times, which may vary by state.

**Special Offer – The Starter package includes one optional free year of Worry-Free Compliance (automatically renews at $199/year).

What is a C Corporation?

  • Definition: The default form of corporation, a separate legal entity from its owners (shareholders).

  • Liability: Shareholders’ personal assets are protected from business debts/liabilities.

  • Taxation: Subject to double taxation—profits taxed at corporate level, and dividends taxed again on shareholders’ personal returns.

  • Structure:

    • More rigid governance.

    • Shareholders elect a board of directors.

    • Board oversees management decisions.

  • Pros:

    • Easier to transfer ownership via shares.

    • Attracts investors.

  • Cons:

    • Complex reporting and paperwork.

    • Slower decision-making process due to governance layers.

What is an S Corporation?

  • Definition: A tax election status, not a separate business structure.

  • Can be elected by C corporations or LLCs.

  • Avoids double taxation by allowing profits/losses to pass through to owners’ personal tax returns.

  • Benefits:

    • Potential self-employment tax savings by splitting income into salary (subject to tax) and distributions (not subject to self-employment tax).

  • Restrictions:

    • Only one class of stock.

    • Owners must be U.S. citizens or resident aliens (certain trusts/estates accepted).

    • Fewer than 100 owners.

  • Advice: Consult a tax professional to navigate complexities.

What is a Sole Proprietorship?

  • Definition: Simplest business form; owned and managed by one person.

  • Requirements: No state paperwork needed to form.

  • Benefits:

    • Easy management and decision-making.

    • Full control and flexibility.

  • Drawbacks:

    • Unlimited personal liability for business debts and lawsuits.

What is a General Partnership?

  • Definition: Business owned and managed by two or more people.

  • Formation: Usually no state paperwork required.

  • Benefits:

    • Easier to start with multiple contributors.

    • Shared start-up costs.

  • Drawbacks:

    • Unlimited personal liability for all partners.

    • Potential conflicts if partners don’t cooperate well.

What is a Nonprofit Corporation?

  • Definition: Entity created to benefit the public.

  • Examples: Private and community foundations.

  • Tax Status: Can be exempt from federal income tax by obtaining IRS 501(c)(3) status.

  • Benefits:

    • Tax-exempt status.

    • Limited liability protection for founders/directors.

  • Drawbacks:

    • Extensive paperwork and regulatory compliance.

    • High costs and public scrutiny of finances.

Choosing a Business Formation Type

Considerations:

  • Liability: LLCs and corporations provide limited liability protection.

  • Tax Implications: Sole proprietorships and partnerships have simpler taxes; corporations and LLCs may offer tax advantages (e.g., S Corp status avoids double taxation).

  • Investor Appeal: Corporations (C or S) are often preferred for attracting investors.

  • Administrative Complexity: Sole proprietorships are easiest; corporations require more formalities (meetings, reports).

  • Control: Sole proprietorship or single-member LLC offer full control; partnerships and corporations involve shared control.