LLC key elements

The two most distinguishing elements of an LLC are liability protection and tax treatment.

From a legal liability standpoint, an LLC gives the owner, called a "member," or "managing member," protection from personal liability. This means only business assets are at risk from the claims of creditors.

From a tax standpoint, a one-member LLC is treated as a "disregarded entity," meaning not a taxpaying entity, since any income or loss is passed through to the member.

If the owner is an individual (and not a corporation), all of the income and expenses of the LLC are reported on Schedule C of the member's Form 1040. In other words, for federal income tax purposes, the LLC is treated just like a sole proprietorship.