Definition
A business structure formed under state law that can protect owners' personal assets from business debts, with flexible tax treatment.
What it means
An LLC is created by filing articles of organization with a state and paying the state's fees. Owners, called members, are generally not personally liable for the company's debts, although that protection can be lost in some situations, such as mixing personal and business money. For federal taxes, a single-member LLC is treated as a disregarded entity by default and reported on the owner's return, and a multi-member LLC is treated as a partnership, unless the LLC elects to be taxed as a corporation. Rules, fees and annual reports differ by state. Under a FinCEN interim final rule from March 2025, companies formed in the United States are not required to file beneficial ownership information reports, though FinCEN rules can change.
Example
A single-member LLC with $60,000 of profit and no tax election reports it on Schedule C like a sole proprietor, but the owner's personal savings are generally separate from business debts.
Illustrative numbers only. Your situation will differ.