An LLC, or limited liability company, is a legal entity, or form of business, that provides limited personal liability to the company’s owners for any debt incurred or legal actions taken against the company. This protection, and the fact that many states allow “single member” limited liability companies, has recently made LLCs a popular legal structure for small businesses and sole proprietorships.

Among an LLC’s advantages is pass-through income taxation, meaning company profits pass-through to the LLC’s owner as personal income and are taxed as such. Another advantage is an owners ability (versus sole proprietorship) to raise investment capital via its ability sell shares of the company. Shares of company stock can be sold, but an LLC enjoys certain freedoms regarding ownership and investor relations that a corporation does not (sometimes making it difficult to raise investment capital): an LLC can be owned by an individual (“single member”), group of members, corporations, foreign entities or another LLC. LLCs are also under no obligation to hold shareholder meetings or appoint a board of directors.

Given their flexibility, an LLC’s legal structure is rather ideal for contract workers and freelancers of many different professions across the independent workforce. Though a relatively easy process, requirements on LLC regulation often vary from state-to-state, so consult your state’s LLC Articles of Organization form via your Secretary of State’s office. And for more information on LLC taxation rules, consult the IRS.