Meaning of a LLC

Definition of a LLC: LLC Stands for a Limited Liability Company, and it is the US version of a private limited company. It combines advantages from both, Partnerships and Corporations.

Partnerships 

They require its owners to pay tax only once. This is technically called pass-through taxation. The income of the Partnership is treated as the personal income of its owners, and its taxed as such. However, the owners of a partnership are liable for all the debts of the business (unlimited liability). This means that if the company runs into financial trouble, the owners respond to the creditors with their personal assets, such as their house, car or money. 

Corporations 

They introduce the concept of limited liability, which means that the owner's personal financial liability is limited to a fixed sum. More specifically, the owners (called shareholders) respond with their personal assets in case the company runs into financial trouble only op to the value of their investment in the company. However, the income of a Corporation is taxed twice as it flows to its shareholders. A corporate tax is applied as soon as the Corporation registers income. When shareholders receive part of this income (for instance as dividends), they are taxed once more, this time according to a personal income tax.

LLCs

They enjoy the benefits from both, partnerships and corporations. Their owners (referred to as members) have limited liability, just like in a corporation, and the income of the LLC can be taxed once, as personal income from its owners, just like in a partnership.

Difference Between LLCs and S Corporations

An S corporation is a special type of corporation (there are also C corporations). It also has most of the federal tax pass-through features found in an LLC and its limited liability. However, in S corporations:

• ownership is limited to 75 shareholders
• no shareholder may be a foreigner
• it can only have one class of stock
• all shareholders must be individuals, certain tax-exempt organizations, qualifying trusts, or estates

An LLC has none of these restrictions. 

The Online Course

Due to the large number of people interested about this subject, I have created an online course that teaches you how to easily create (and dissolve) a US business from the comfort of your home, be it in the US or elsewhere, avoiding expensive legal fees.

The course contains 37 lectures with videos, instructions, quizzes and checklists to help you navigate through the process of setting up your US company, avoiding common pitfalls inexperienced entrepreneurs usually fall into. You will also find templates for all the necessary legal documents, which you can freely download and use right away.

As a special thank to my blog readers, I've created 100 coupons to access this course with a 50% discount. Click on the link below to redeem your discount code before I run out of invitations!

For an in-depth understanding of how to form your business in the US I recommend you this book by Constance E. Bagley.

Enjoy creating your US company!