--- title: What Is an LLC? description: A quick and simple guide to limited liability companies, including the structure of different types of LLCs and tax classification options. authors: - name: Ana Reina role: Staff Writer url: https://money.com/author/ana-reina/ bio: Ana Reina holds a BA in International Studies from Bryn Mawr College. She specializes in insurance. at_money_since: 2019 articles: 14 covers: - Business - Banking - Education - Insurance - Mortgages social: - https://twitter.com/_anareina - https://www.linkedin.com/in/ana-gabriela-reina- former_staff: true published: '2020-12-03T18:11:38.000Z' modified: '2025-06-13T18:59:20.000Z' section: Business tags: - Apex4251 - flow-through entities - flow-through taxation - Guides - holding company - limited liability companies - money 101 word_count: 853 canonical: https://money.com/what-is-an-llc/ type: Article source: structured-blocks --- > **Disclosure:** We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. [Learn more](https://money.com/page/disclaimer/). ![What Is an LLC?](https://img.money.com/2020/08/LLC.gif?w=1012&h=569&crop=1) ## Our Partners ### TOP PARTNER ![Get Started](https://s3.consumersadvocate.org/prd/image/image/23703/medium_53fd5882-0cdf-457c-9956-c925cf4fba3f.png) Our Partner [Get Started](https://money.com/go/3a3494b1dd6b?ap_referrer=%2Fwhat-is-an-llc%2F&bidid=4112049446&ptid=670522377&ptoken=9766b6e6f2e0ef4f9ea709428105e485&zip=20149) - Set up any business entity type - Starts at $0 + State fees - Get help from real attorneys in your state - Unlimited lifetime customer support - Business tax and compliance services * * * ![Get Started](https://s3.consumersadvocate.org/prd/image/image/31260/medium_caa19c53-c5e6-4486-95de-ea954a4dc1f2.webp) Our Partner [Get Started](https://money.com/go/f1926bc90a81?ap_referrer=%2Fwhat-is-an-llc%2F&bidid=4112049450&ptid=670522377&ptoken=6a02f39866c709442b8864f2aa74eac7&zip=20149) **Personalized AI assistant that automates filings & tracks deadlines** - Fast, accurate LLC formation with zero guesswork - 100% accuracy guarantee on all filings - Join over 900,000 new businesses that trust ZenBusiness - Starter: $0 + state fees (most affordable entry point) - 30-day trial of Business website builder * * * ![Get Started](https://s3.consumersadvocate.org/prd/image/image/22721/medium_02b9fd23-9012-4493-b49a-6c5cc56a84e4.png) Our Partner [Get Started](https://money.com/go/4d3591757472?ap_referrer=%2Fwhat-is-an-llc%2F&bidid=4112049451&ptid=670522377&ptoken=bed7f2d71031afade1d99150118f6ca4&zip=20149) **Everything you need to launch your business - from LLC formation to compliance.** - LLC + Full Compliance & Finance Tools - Free 12-Week Business Coaching - AI Guidance Included - 100% Online Setup * * * ![Get Started](https://s3.consumersadvocate.org/prd/image/image/15035/medium_0d2fd1e4-fef5-4c1d-bce0-62e1b9e85c62.webp) Our Partner [Get Started](https://money.com/go/a4c34c173763?ap_referrer=%2Fwhat-is-an-llc%2F&bidid=4112049448&ptid=670522377&ptoken=330b5f0bdae5ed44f0e0a2c306490424&zip=20149) - Form and manage your LLC or corporation - Fast, 2-day turnaround for new entities - Transparent, competitive pricing - Comprehensive form lists and document requirements to guide you - One-time purchases or subscription plans available - A+ rated by the Better Business Bureau A limited liability company (LLC) is a type of U.S. business structure. Created by one or more business owners, or “members,” an LLC allows people to separate their personal assets from their company — which gives them flexibility when it comes to taxes and some liability protection from debt and lawsuits. ## What You Should Know: - LLCs are formed at the state level (the federal government isn’t involved), and the rules for creating one vary from state to state. - In most states, business owners must file Articles of Organization, a legal document used to establish the LLC in the state in which it does business. This process requires a fee. - For many business owners, an LLCs strongest selling point is its “pass-through” taxation benefit — the business doesn't pay taxes on earnings, instead, earnings are passed through to the owners who report them on their individual tax returns. - Members also enjoy limited liability, meaning their personal assets, like their cars, homes, and savings accounts, are — in many cases — protected from lawsuits and creditors. - A member's liability is directly related to the number of business shares they hold. - An LLC is a flexible business structure in terms of ownership: individuals, corporations, and even other LLCs can be owners, although some entities like banks and insurance companies cannot operate as LLCs. ## Launch you dream business with Better Legal ### Better Legal offers a smooth and affordable business registration services tailored to your needs. Select your state to get started today! [Get Started](https://money.com/pr/gc6f47c2d758?ap_referrer=%2Fwhat-is-an-llc%2F) The business structure of an LLC is a hybrid between a partnership, which is an agreement of business between two or more owners, and a corporation, which is a legal entity separate from its owners. According to Shakera Thompson, a business and intellectual property lawyer based in New York City, LLCs are popular with small business owners because they essentially capture the benefits of a corporation, like personal liability protection, and ownership flexibility, without the disadvantages. “As in a corporation, LLC members enjoy limited liability, meaning the member’s personal assets are protected against the liabilities of the LLC. Unlike a corporation, however, an LLC is generally simpler to manage because they have fewer administrative requirements, such as having a board of directors,” Thompson says. “LLCs also enjoy the benefits of pass-through taxation, meaning that unlike a corporation, the business itself is not taxed (which would result in double taxation) and instead the tax obligations are "passed through" to the LLC's members,” she adds. ## Organization and Structure In an LLC, owners are called “members” rather than shareholders or partners. Members must legally draft an operating agreement by which to run the business. These organizations can be structured in a variety of ways based on how the company is managed, who its members are, where the company operates, and what the main function of the business is. Those include: - **Single-Member vs. Multi Member LLC** - Whether the company is owned by one or more people. A single-member LLC has one owner, or member, that had full ownership of the company. A multi-member LLC has two or more owners who share control of the business - **Member-Managed vs. Manager-Managed LLC** - Whether the company is managed by a member (owner) or managed or by a non-member hired to perform this job. - **Holding or Umbrella LLC** - Unlike operating LLCs which offer goods or services, holding or umbrella LLCs simply own the assets (stock, real estate, patents, etc.) of other operating companies called subsidiaries. The main purpose of a holding company is to limit liability for owners of multiple businesses by separating and protecting assets from creditors or legal action against a subsidiary. - **Domestic vs. Foreign LLC** - Domestic LLCs stay in one state, while foreign LLCs do business in a state other than the one where they were formed. - **Professional LLC** - Businesses where members hold certain licenses, like doctors and lawyers, are formed as PLLCs. - **Anonymous LLC** - Currently only available in New Mexico, this structure limits the company’s ownership details to the public. ## Taxation One of the main benefits of registering a business as an LLC under the default classification is the pass-through taxation, where owners avoid double taxation because, unlike corporations, they're not taxed at the company level and then again at the personal level. However, according to Will Lopez, CPA and Head of Accounting at Gusto, a payroll, benefits, and onboarding platform, these benefits will also depend on the tax classification of the LLC. "Small business owners should work with tax accountants to decide how they should be taxed," said Lopez. In general, LLCs can be taxed by the IRS via four distinct classification options: single-member sole proprietorships, multiple-member partnerships, s-corporations, and c-corporations. ![](https://img.money.com/2020/12/Money101-characteristics-of-an-llc.jpg) ## How Long Does It Take To Form An LLC? The time that it takes to form an LLC varies by state. If the state accepts online filings, an LLC can usually be formed within minutes of submitting the full documentation. States that do not accept online filings generally accept faxed filings. As for one-time registration fee and costs, Thompson estimates that they generally average $200, but it varies by state. Although you do not necessarily need a lawyer to form an LLC, these are legally binding documents, so it’s advisable to consult with one before submitting your application. ## Start your business venture with confidence ### Start your entrepreneurial journey with professional Business Registration Services. Your success starts here! 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