What does LLC mean?
What is the limited liability company business definition?
What does LLC mean after a company name?
We will look at what LLC means in a company name, what LLC stands for, the purpose of having an LLC, how does an LLC work, examples and more.
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Table of Contents
What does LLC stand for in business
LLC is an abbreviation for a limited liability company.
An “LLC” or a “limited liability company” is a legal entity that offers limited liability protection to its owners just like corporations do.
If you decide to start a business and are looking for a separate and distinct legal entity, you may decide to incorporate or you may decide to form an LLC.
Every state will regulate LLCs according to their own rules although the LLC formation rules are similar in their essence.
You can choose to opt for an LLC to run your business.
The owners of an LLC are called members whereas in a corporate they are referred to as shareholders.
Limited liability company definition
According to Cornell Law School’s Legal Information Institute, LLC means the following:
A type of business organization that offers the limited liability of a corporation and the tax benefits of a partnership. The owners of an LLC are referred to as “members”, whose rights and responsibilities in managing the LLC are governed by an operating agreement.
What is notable with this definition is that an LLC is a type of business entity that offers its owner limited liability protection just like a corporation and tax advantages like a partnership.
You can consider it to be a hybrid entity giving you the benefits of both worlds.
What is an LLC and how does it work
Generally, you can operate your business in the following forms:
- As a sole proprietorship
- As an LLC
- As a corporation
To operate an LLC, you must put together your articles of organization and file it with the state where you want to operate your LLC.
You form an LLC by:
- Choosing your name or DBA (doing business as)
- Preparing your articles of organization
- Preparing your operating agreement
- Filing your articles of organization with the relevant state
- Paying your state filing fees
- Appointing an LLC registered agent
- Defining your business purpose
The LLC articles of organization are what you need to file with the state to create your LLC.
The LLC operating agreement is a document outlining the rights and responsibilities of the LLC members (owners) and how the LLC will be internally governed.
In most cases, anyone can form an LLC no matter if you are an individual, entity, domestic or foreign.
What is the purpose of an LLC
Many choose to form an LLC as it provides more legal protection than operating a business as a sole proprietorship and it requires less administrative effort than forming a corporation.
What are the reasons why someone should choose an LLC?
There are several key benefits or advantages in operating an LLC instead of another form of business, that is:
- It offers limited liability protection to its members
- The LLC operating agreement is a flexible document and can be drafted in a way suitable for the LLC owners
- It provides your business with greater credibility when dealing with others
- It can be run by its own members or designated managers
- The members can make beneficial tax elections like having pass-through taxation
- Compliance with state rules are simpler
How does an LLC protect you
Just like corporations, an LLC is a separate legal entity.
An LLC is separate and distinct from its owners or members.
In other words, when it is formed, the LLC will own assets or acquire liabilities.
By operating an LLC, you are personally protected as the business creditors cannot come after you personally to recover debts and liabilities of the LLC.
This means that an LLC provides you with personal limited liability.
For example:
Mary owns an LLC and she takes a loan for the sum of $100,000 in the name of the LLC for her business.
Things don’t go as planned and the LLC is unable to pay back the bank.
The bank can only go after the LLC and cannot pursue Mary’s personal assets to recover outstanding debt.
Mary’s personal assets are shielded by the LLC.
Limited liability company examples
There are many global brands operating as an LLC.
Here are some examples of limited liability companies that you will surely recognize:
- Sony
- Nike
- eBay
- IBM
- Pepsi-Cola
Although these entities are formed of hundreds, if not thousands, of entities around the world, they will use an LLC entity within their group to maximize their legal and financial advantages.
Now, let’s look at an example of how an LLC works in real life.
John and Marc are financial consultants.
They would like to start a financial consulting business together and decided to form an LLC.
They form an LLC where each of them will own 50% of the interests of the LLC.
They choose their LLC name, file their articles of organization and agree on the terms of an operating agreement allowing them to run their company.
They will both act as owners and managers of the business.
By having an LLC, they are legally protected from liability and they can choose to be taxed like a partnership or like a corporation.
What does LLC mean FAQ
What does LLC mean?
LLC stands for “limited liability company”.
The LLC term or abbreviation must appear at the end of the company name to signal to the world that this business is operating as an LLC.
For example:
- John’s Landscaping LLC
- Mary’s Top Consultants LLC
- Five Star Brokers LLC
LLC or L.L.C., which is correct?
LLC and L.L.C. refer to the same thing.
When registering an LLC, you must respect the proper naming convention required for LLCs.
Typically, you can register your business name followed by:
- LLC
- L.L.C.
- Limited Liability Company
There are many other ways people may refer to LLC’s as well such as:
- LC
- L.C.
- LTD liability company
- LL Company
The most common way of referring to a limited liability company is “LLC” or “L.L.C.”.
However, to register an LLC with the Secretary of State or equivalent agency, you must respect the state’s naming convention.
What does limited liability company mean?
A limited liability company refers to a legal entity allowing you to operate a business.
You may choose to operate a business as a sole proprietor, under a limited liability company or a corporation.
An LLC is a legal entity owned by its members offering them the benefits of personal liability protection offered by corporations and the tax advantages offered by a traditional partnership.
What is LLC used for?
LLC is used to indicate to the world the type of business entity you are running and to ensure you differentiate an individual from the entity.
One of the important reasons why you form an LLC is to benefit from the limited liability protection offered by law.
To do that, you must make sure that you sign legal documents, enter into transactions or assume debt or liability under your LLCs name and not personally.
To ensure that you are not signing a document personally, you’ll need to use your LLC company name by ensuring you use the LLC abbreviation.
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