The LLC is a relatively new business structure, but one that’s gained popularity in recent years. Many small businesses opt to form as an LLC rather than a corporation, given the LLC’s somewhat simpler structure and increased flexibility.
What do we mean by greater “flexibility”? In a corporation, the decision-making process is divided between directors and officers, who each have separate and distinct responsibilities. Corporations typically have bylaws that require decisions to be made by a certain number of shareholders and/or directors during formal meetings, while LLCs are often better able to make decisions on the fly and with fewer formalities.
LLCs are also taxed in a way that many view as simple and easy to understand when compared to the often-complicated world of corporate taxation. An LLC is not taxed as a stand-alone corporate entity. Rather, the members of the LLC report losses and profits on their own personal returns; for this reason, an LLC is called a “pass-through entity” (since losses and profits “pass through” to the members). That said, an LLC can also elect to be taxed as a corporation, allowing additional flexibility for members.