A Limited Liability Company (LLC) is a business structure that provides personal liability protection to its owners (called members) while offering flexible taxation options. An LLC creates a legal separation between you and your business, meaning business debts, lawsuits, and obligations generally cannot be satisfied by your personal assets such as your home, personal bank accounts, or vehicle.
LLCs are the most popular business structure filed in the United States, combining the simplicity of a sole proprietorship with the liability protection of a corporation. Unlike corporations, LLCs are not required to hold annual meetings, maintain a board of directors, or follow complex corporate formalities. This makes them ideal for small businesses, freelancers, real estate investors, and side hustles that want legal protection without excessive bureaucracy.
By default, a single-member LLC is treated as a "disregarded entity" by the IRS and taxed like a sole proprietorship. Business income passes through to your personal tax return on Schedule C, and you pay income tax plus 15.3% self-employment tax on net earnings. A multi-member LLC is taxed as a partnership by default, with each member receiving a K-1 form.
LLCs can also elect to be taxed as an S-Corporation (Form 2553) or C-Corporation (Form 8832). S-Corp election is popular for profitable businesses because it can reduce self-employment tax by splitting income between a reasonable salary and distributions. This strategy typically becomes beneficial when net business income exceeds $50,000. See our LLC vs Sole Proprietorship guide for a detailed comparison.
LLC filing fees vary from $40 (Kentucky) to $500 (Massachusetts). Most states charge between $50 and $200. Annual maintenance costs include state annual reports ($0 to $800) and registered agent fees ($0 to $150). For a complete breakdown of every state, see our 50-State LLC Cost Comparison or the LLC Formation Guide.