This is not to be construed as legal advice consult an attorney or accountant.

This is what I've gathered actually being in the corporate world for almost 20 years now.

A corporation is almost legally a person. It can open bank accounts, it will have its own unique ID number (an EIN, or Employer Identification Number)it can make donations, it can own things. The big difference is that in a sole-proprietorship, YOU are responsible if something goes wrong. YOUR assets are vulnerable. But LLC, stands for "Limited Liability Corporation (or LLP for Partnership--usually professionals like attorneys where there will be more than one partner in the firm.) The company must be classified as a corporation, partnership or sole proprietorship for tax purposes..

Sure enough, I hit the nail on the head. Here's how Legalzoom explains it:

"A limited liability partnership, or LLP, is a relatively new creation. It operates much like a limited partnership, but gives each member of the LLP an equal voice in managing the business. It also protects members from personal liability, except to the extent of their investment in the LLP.

"Generally, partners in a limited liability partnership aren't responsible for another partner's debts, obligations, or liabilities resulting from negligence, malpractice or misconduct.

"Professional organizations (such as accounting and law firms) often form as limited liability partnerships because they are specifically designed to limit malpractice claims against uninvolved partners. Partners are liable for debts and obligations created as a result of their own negligence, malpractice or misconduct, as well as those of any person under their direct supervision."

So the limit of the liability extends only to the actions of that partner, or if the company as a whole is sued, each partner's liability is limited to whatever they've invested.

Here's how the IRS explains it:

"Limited Liability Company (LLC)
A Limited Liability Company (LLC) is a business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.

Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single member” LLCs, those having only one owner.

A few types of businesses generally cannot be LLCs, such as banks and insurance companies. Check your state’s requirements and the federal tax regulations for further information. There are special rules for foreign LLCs.

Classifications
The federal government does not recognize an LLC as a classification for federal tax purposes. An LLC business entity must file as a corporation, partnership or sole proprietorship tax return.

An LLC that is not automatically classified as a corporation can file Form 8832 to elect their business entity classification. A business with at least 2 members can choose to be classified as an association taxable as a corporation or a partnership, and a business entity with a single member can choose to be classified as either an association taxable as a corporation or disregarded as an entity separate from its owner, a “disregarded entity.” Form 8832 is also filed to change the LLC’s classification.

Effective Date of Election
The election to be taxed as the new entity will be in effect on the date the LLC enters on line 8 of Form 8832. However, if the LLC does not enter a date, the election will be in effect as of the form’s filing date. The election cannot take place more than 75 days prior to the date that the LLC files Form 8832 and the LLC cannot make the election effective for a date that is more than 12 months after it files Form 8832. However, if the election is the “initial classification election,” and not a request to change the entity classification, there is relief available for a late election (more than 75 days before the filing of the Form 8832)."

Sole proprietorship advantage: You're the boss and you call the shots. The downside--it's your ass on the line for every employee's actions.

LLC advantages: Bring in investors and when you form LLC, determine how much of a say they get in what happens. Disadvantage: You give up some control, but if you have the same vision and goal it works. All of the big "K Street law firms" in Washington, DC are pretty much associations--if you were to get down to it, each attorney operates like a completely independent company, doing his or her own billable hours. Perhaps sharing resources like a receptionist an office and a copy room are the upsides.

One firm that was a client of mine in DC, both a a corporation and as individuals, had 5 last names on the door, and when I left there ten years ago, another attorney had just become partner. They had shortened it to just the first two to answer the phones. From a fast look at their site, It looks to me like the father of the father-son team that started the firm in the 60s has retired, and so has my one of my best clients, and so their names have been replaced by the next two other most-senior partners' names, leaving five names still on the door.

There are single-member LLCs, too.

"An LLC is an entity created by state statute. The IRS uses tax entity classification, which allows the LLC to be taxed as a corporation, partnership, or sole proprietor, depending on elections made by the LLC and the number of members. An LLC is always classified under federal law as one of these types of taxable entities.

A multi-member LLC can be either a partnership or a corporation, including an S corporation. To be treated as a corporation, an LLC has to file Form Form 8832, Entity Classification Election (PDF), and elect to be taxed as a corporation. A multi-member LLC that does not so elect will be classified under federal law as a partnership.

A single member LLC (SMLLC) can be either a corporation or a single member “disregarded entity”. Again, to be treated under federal law as a corporation, the SMLLC has to file Form 8832 and elect to be classified as a corporation. An SMLLC that does not elect to be a corporation will be classified by the existing federal guidance as a “disregarded entity” which is taxed as a sole proprietor for income tax purposes."

Click the links and consult someone with more legal experience than I have.