LLC.
In plain English
An LLC, or limited liability company, is a business entity you create by filing paperwork (usually called articles of organization) with your state. Its main benefit is in the name: limited liability, meaning your personal assets are generally protected if the business is sued or cannot pay its debts. For taxes, a single-owner LLC is treated like a sole proprietorship by default (income flows to your personal return on Schedule C), so the IRS often calls it a disregarded entity. An LLC can also elect to be taxed as an S corporation or a C corporation; the election changes how the profit is taxed, not what the LLC is.
01Why it matters
The liability shield can keep a business lawsuit or unpaid business loan from reaching your house and personal savings, as long as business and personal money are kept separate.
02The math, step by step
A handyman forms a single-member LLC by paying his state's filing fee. A year later a client trips over his ladder and sues for $30,000. Because the LLC is a separate legal entity, the lawsuit generally targets the business, not his personal bank account, as long as he kept business and personal money separate. Filing fees vary by state, so check your state's business filing office (often the Secretary of State).
03What this is NOT
An LLC is not a tax classification. It is a legal structure. By default it is taxed like a sole proprietorship or partnership, but you can separately elect S corp or C corp tax treatment.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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