You can use an LLC for almost any lawful activity: running a business, owning rental property, freelancing, holding investments or intellectual property, and moving family wealth between generations. The structure puts a legal wall between you personally and whatever the entity does, so a lawsuit or debt against the LLC doesn’t automatically reach your house or your bank account. A small set of heavily regulated activities, mainly banking and insurance, can’t be run through an LLC, and some licensed professions require a specialized version instead. Everything else is on the table, provided you actually run the LLC as a separate business rather than a nickname for yourself.
Running an Active Business
The most common use is operating a business. Under the Uniform Limited Liability Company Act, an LLC can be organized for any lawful purpose, whether or not the activity is carried on for profit.1National Conference of Commissioners on Uniform State Laws. Uniform Limited Liability Company Act (1996) – Section: Nature of Business and Powers That covers everything from a solo consulting practice to a shop with employees to a manufacturer with suppliers across the country.
Once your LLC exists, it can sign contracts, lease commercial space, and open bank accounts in its own name. If you plan to hire employees, you need an Employer Identification Number from the IRS, which you can get online in minutes at no cost.2Internal Revenue Service. Get an Employer Identification Number Most banks will ask for an EIN before opening a business checking account even if you have no employees. From there you can pull permits, sign supplier agreements, and change your business model later without having to form a new entity.
Owning Real Estate
Real estate investors routinely hold properties inside LLCs. When the LLC owns the deed, it acts as the landlord on the lease, collects rent, pays property taxes, and carries its own insurance. If a tenant sues over an injury or a lease dispute, the lawsuit names the LLC, not you.
Owners of multiple properties often put each one in its own LLC. If something goes wrong with one building, the fallout stays contained in that entity instead of spreading to your other holdings. The deed is recorded in the LLC’s name at your county recorder’s office to make the ownership official.
Transferring a Mortgaged Property
If the property already has a mortgage, be careful before you move it into an LLC. Most residential mortgages include a due-on-sale clause letting the lender demand full repayment when you transfer the property without consent. The federal Garn-St. Germain Act carves out specific exceptions, including transfers into a trust where the borrower stays a beneficiary, transfers to a spouse or children, and transfers on the borrower’s death.3Office of the Law Revision Counsel. 12 U.S. Code 1701j-3 – Preemption of Due-on-Sale Prohibitions Transfers into an LLC are not on that list. In practice, many lenders won’t enforce the clause when the borrower keeps control, but they have the legal right to. Call your lender before you file anything.
Freelance, Consulting, and Professional Services
Freelancers, consultants, and independent contractors use LLCs to keep their professional work separate from their personal finances. Billing through an LLC makes it cleaner to manage client contracts, issue invoices, and track business expenses. Larger clients often expect to see a formal entity before signing a service agreement.
Licensed professionals, including doctors, lawyers, architects, and accountants, often cannot use a standard LLC. Many states require a Professional Limited Liability Company, or PLLC. A regular LLC formed by a licensed professional may not be recognized by the state licensing board at all, so the PLLC exists to satisfy those regulators while giving you the organizational benefits of an LLC.
One limit is worth being clear about: neither an LLC nor a PLLC shields you from liability for your own professional negligence. If you personally commit malpractice, you’re personally on the hook regardless of the entity. Where the shield kicks in is with the actions of your partners or coworkers. Their malpractice doesn’t reach your personal assets just because you share an entity.
Holding Assets and Other Companies
Not every LLC sells something. Some exist only to own things. A holding LLC’s job is to hold assets, whether that’s ownership stakes in other businesses, investment accounts, or intellectual property like trademarks, patents, and copyrights. The holding company can then license those assets to operating companies, which puts a layer of separation between valuable property and day-to-day business risk.
Entrepreneurs who run several ventures often use this structure. A parent LLC owns membership interests in multiple subsidiary LLCs, each operating its own business. If one subsidiary gets sued, the assets held by the parent and the other subsidiaries stay insulated. Capital moves between entities through documented distributions and contributions, with a clear ownership hierarchy on paper.
Protection from Your Personal Creditors
Holding assets inside an LLC also limits what your personal creditors can reach. Under the Revised Uniform Limited Liability Company Act adopted in most states, a charging order is the exclusive remedy a judgment creditor can use against your membership interest. A creditor who wins a personal judgment against you can obtain a charging order entitling them to any distributions the LLC makes to you, but they cannot seize LLC assets, force the LLC to make a distribution, or step into management. That makes the LLC a stronger asset-protection vehicle than owning the same investments in your own name.
Estate Planning and Family Wealth
Families use LLCs to manage and gradually hand down wealth. Instead of splitting a vacation home, an investment portfolio, or a family business among heirs, the family puts the asset into an LLC and transfers membership interests over time. The operating agreement spells out who manages the LLC, how distributions work, and what happens when an interest is transferred or a member dies.4U.S. Chamber of Commerce. How to Write an Operating Agreement for an LLC
The senior generation can transfer interests to heirs while keeping management control. The operating agreement can restrict what junior members do with their interests, so an heir can’t sell their stake to an outsider or force the family to liquidate.
There’s a tax angle, too. When you transfer a minority membership interest, the IRS allows the value of that interest to be discounted because the recipient has no management control and no easy way to sell. These minority interest and lack-of-marketability discounts can meaningfully reduce the taxable value of the gift, though the IRS scrutinizes them and will expect a qualified appraisal. In 2026, the annual gift tax exclusion is $19,000 per recipient,5Internal Revenue Service. What’s New – Estate and Gift Tax so a married couple can move $38,000 of discounted interests per child each year without touching their lifetime exemption.
Uses That Are Off-Limits
The “any lawful purpose” language has edges. Most states do not allow LLCs to operate as banks or insurance companies. Those industries are typically required to organize as corporations with boards of directors and shareholder oversight, which gives regulators clearer accountability than the more flexible LLC structure.
Some states also restrict specific licensed professions from forming a standard LLC, requiring a PLLC or a professional corporation instead. Which professions are covered varies, but the list often includes healthcare providers, attorneys, and certified public accountants. Check your state’s LLC statute and your licensing board’s rules before you file.
Keeping the Liability Shield You Formed the LLC to Get
The protection isn’t automatic. Courts can “pierce the veil” and hold you personally responsible for the LLC’s obligations if you treat the entity as an extension of yourself. Judges generally ask two things: whether the company was actually run as a separate entity, and whether the owners engaged in fraud or dishonest conduct. In practice, that comes down to a few recurring mistakes:
- Commingling funds. Paying personal expenses from the LLC’s account, or depositing business revenue into your personal account, is the fastest way to lose the shield. The LLC needs its own bank account, its own cards, and its own books.
- Undercapitalization. If the LLC was never funded with enough money to realistically operate, courts treat that as evidence the entity was a sham from the start.
- Ignoring formalities. Skipping the operating agreement, missing annual filings, or making major decisions without documented resolutions all weaken the separation.
- Fraud. Courts are far more willing to pierce when the owners acted dishonestly. Good-faith sloppiness is less dangerous than deliberate misrepresentation to creditors.
Even with perfect maintenance, you lose the shield for any obligation you personally guarantee. Landlords, lenders, and major suppliers routinely require personal guarantees from LLC owners, especially for new businesses without credit history. When you sign one, you’re agreeing to pay the debt yourself if the LLC can’t, and no amount of corporate formality changes that.
What the LLC Will Cost You Every Year
Forming an LLC is the easy part. Keeping it in good standing takes ongoing attention, and the specifics vary by state.
- Annual or biennial reports updating your LLC’s basic information. Fees range from nothing in a handful of states to several hundred dollars in others. Miss the filing and the state can administratively dissolve the LLC, stripping away your liability protection without warning.
- A registered agent with a physical address in the state of formation. You can serve as your own, but commercial services typically cost $100 to $300 a year.
- State-level taxes and fees. Some states impose franchise taxes, gross receipts taxes, or minimum annual taxes regardless of income. California’s $800 annual LLC tax is the most familiar example, but it isn’t the only one.
- Publication requirements in a few states, which require newly formed LLCs to publish notice in a local newspaper at varying cost.
- An operating agreement. It isn’t filed with the state, but it governs how the LLC runs: ownership percentages, distributions, management authority, and what happens when a member leaves or dies. Single-member LLCs need one too, because it strengthens the legal separation between you and the entity.
On the federal side, once you have an EIN the IRS expects a return in every year, even one with no business activity.2Internal Revenue Service. Get an Employer Identification Number Three consecutive missed filings can cause the IRS to revoke an S-Corp election, which is far harder to fix than to prevent.