What Does LLC Mean In Business?

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LLCIf you’re thinking of starting your company or business endeavor, you may be wondering what LLC means in business. It’s an abbreviation often seen attached to the names of small businesses. LLC stands for limited liability company and refers to a type of business in which the owners hold far less liability than a traditional corporation would, according to Entrepreneur. Forming a business as a limited liability company offers tax advantages and legal protections that are especially helpful for small entities just starting out with few resources.


Until the middle of the 1970’s, businesses had only two options when it came to legal formations. They could form either as a corporation or as partnership. Both of these choices had certain disadvantages. With a corporation, taxes are essentially levied twice, on net profits and capital gains. The advantage for corporations is in the fact that shareholders are offered legal protections. There are tax-related benefits to forming a partnership, as this form of business is taxed only once. However, a partnership does face legal vulnerability when it comes to lawsuits or financial debt. An LLC offers the best of both worlds and is protected legally, as well as in terms of tax-related issues.


Let’s take a closer look at the benefits offered by holding an LLC rather than starting a corporation. When it comes to taxation, LLCs automatically receive what’s known as a tax pass-through. This simply means there are no taxes required to be paid on net profits, only on the income that shows on their tax return. Perhaps an even better benefit than the tax savings is the freedom from liability of debt or legal issues offered to owners and shareholders through forming a limited liability company. The only way for someone to be burdened with a certain liability is if a member signs a legally binding agreement to take on any debt personally. All others can rest easy in the knowledge that they are safe from liability in the case of lawsuit or financial disaster.


So what LLC means in business is that there is tremendous monetary and legal benefit for most individuals and shareholders involved in setting one up, there are specific situations in which you may prefer to go with a traditional corporation. For example, because the LLC is a relatively new concept that has only been around since 2010, some investors tend to be a bit wary of putting their money into one until they are sure of the workings. Another issue facing LLCs is that initial legal fees for startup may are likely to be higher. The reason for this is that agreements needed for corporations to get started are usually ready-made, thus requiring less time, effort and legal expertise.

Related Resource: Regional Payment Association

There are fairly simple ways for established corporations to switch over to the classification of an LLC. This transition my require only filling out some paperwork or it could be a bit more complicated. Each state has its own requirements, but it can be done for those corporations wishing to receive the benefits of a limited liability company. What LLC means in business, overall, is a less-risky method for starting a company than in times past.

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