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What Does LLC Mean – and Is It Right for Your Business?

Key Takeaways

  • LLC stands for limited liability company, which means its members are not personally liable for the company’s debts.
  • LLCs are taxed on a “pass-through” basis — all profits and losses are filed through the member’s personal tax return.
  • Generally, LLCs are required to pay a one-time filing fee as well as an annual fee. However, some states do not require an annual fee.

Starting a new business and don’t know which official company structure is best? Perhaps you’ve heard of a limited liability company (LLC), sole proprietorship, or an S corporation or C corporation. For now, let’s focus on LLCs.

What does LLC mean? This business legal entity is a hybrid between a corporation and a partnership. LLCs have some tax benefits as well as ownership advantages for businesses looking to raise capital.

Limited liability

One core similarity between LLCs and corporations is their limited-liability status. That means the business’ owners and shareholders are not held personally liable for any of the business’ losses or risks. Partnerships, on the other hand, do not have limited liability since the business is not a separate entity from the individual owners.


Like C corporations, LLCs can have unlimited shareholders (S corporations are capped at 100). However, unlike corporations, LLCs are generally not required to hold annual shareholder meetings, and a board of directors is not required.


The protection of personal assets isn’t the only benefit of filing as an LLC. There are tax advantages, too.

LLCs are taxed on a “pass-through” basis, which means all profits and losses from the business pass through each member’s personal tax return. S corporations are also taxed on a “pass-through” basis, while C corporations are taxed at the corporate rate and face the possibility of double taxation (profits are taxed at corporate and personal income rate). While both LLCs and S corporations are taxed similarly, they are not all the same — LLCs can be structured to have profits allocated differently to each member.

Additionally, LLCs are not required to pay Social Security and Medicare taxes on its profits.


LLCs are charged a one-time filing fee when you form your LLC. Beyond the filing fee, most states also require an annual fee to operate an LLC.

Can all companies be LLCs?

Actually, no — banks and insurance companies cannot form LLCs.

More information

We are committed to helping your business reach its potential. Our dedicated business banking professionals can help you find the right product to meet your business’ needs. To learn more, please call 1-800-428-7463, visit us online, or visit your nearest Citizens Bank branch.

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