Limited Liability. Similar to a corporation, all of the members (owners of an LLC are called members) of an LLC enjoy limited personal liability. Generally owners are not exposed to legal liability for the debts of the business, you only risk your share of the investment in the business.
Tax Flexibility. An LLC with two or more members can choose how it wishes to be taxed. It can have the pass-through taxation of partnership or elect to be taxed as a corporation. Most LLC?s will choose to have pass-through taxation in order to have the profit or losses of the business pass-through to the to the tax returns of it?s individual members. Electing pass-through taxation avoids the possibility of the double taxation associated with traditional corporations.
For LLC?s with only one member you can elect to be taxed as a sole proprietorship or a corporation. Most single member LLC?s will elect to be taxed as a sole proprietorship to avoid double taxation, however, many are electing to be taxed as an S Corporation which also allows for pass through taxation. Electing to be taxed as a Sole Proprietorship would mean that profits and losses from the LLC will be reported on your individual tax return on Schedule C.
Flexible Management Structure. An LLC can be managed by it?s members or it can designate a manager or managers who will run the LLC. It is common for the members of an LLC to be closely involved in the running of the day to day affairs of the business, this is referred to as a member managed LLC. Generally an LLC with only a few members will be member managed. If an LLC chooses to be run by a manger or managers it is referred to as a manager managed LLC. A member of the LLC can also act as a manager or a group of members can act as Managers.
Flexible Distribution of Profits and Losses. Members of an LLC can distribute profits and losses any way they choose. You do not have to divide up the profits and losses according to the assets contributed by each member.