An LLC is a separate legal entity from its owners (called members) and, if formed and operated properly, provides the members with liability protection from most liabilities created by the operation of the LLC. This means that the members’ liability is limited to the amount of their investment in the LLC and, significantly, creditors of the LLC cannot reach the members’ personal assets. Some exceptions to this general principal of limited liability do apply and you should discuss the specific facts of your business with your attorney.

Another attractive aspect of operating a business through an LLC is that LLCs are eligible for “flow-through” tax treatment. This means that LLCs avoid the double-taxation experienced by corporations (i.e., tax is paid on earnings at the corporate level and again at the individual level when corporate earnings are paid to shareholders as dividends). LLCs typically pay no tax at the entity level. An LLC with more than one owner files an informational tax return and issues K-1 forms to its members. These K-1 forms advise each member how much income or loss has been allocated to the member (typically the allocation is equal to the percentage of the entity the member owns). The members then report this allocated income or loss on their individual tax return. For LLCs with only one owner, the LLC may be treated as a disregarded entity for tax purposes, meaning the owner simply reports the income or loss of the LLC directly on his or her individual tax return. LLC taxation is a specialized and complex area of law and you should consult with your tax professional prior to making decisions concerning the tax treatment of your entity.

Please be advised that this article is not comprehensive and is not a substitute for competent legal advice. You may also consult the Oklahoma Limited Liability Company Act (Title 18 O.S. § 2000 et. seq.) for more information about Oklahoma LLC’s.