A Limited Liability Company (LLC) is not a partnership or a corporation but includes features of both. LLCs are structured like a partnership or a sole proprietorship but with limited liability protection similar to a corporation. Because an LLC is considered a separate entity from its owners, the owners cannot be held personally liable for debts and obligations of the LLC. This is the principal advantage of an LLC. An LLC provides all the liability protection of a C Corporation but with far less formalities.
The IRS does not recognize an LLC as a classification for federal tax purposes. LLC members can elect for the IRS to tax the LLC as a sole proprietorship, partnership, C Corporation, or S Corporation. This decision may be made after the LLC is created. If a single member LLC does not declare a tax classification within the alloted time it is taxed the same as a sole proprietorship. A multiple member LLC that does not declare a tax classification is taxed as a general partnership.