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A limited liability company (often abbreviated L.L.C. or LLC) in the law of the vast majority of United States jurisdictions is a legal form of business company that provides limited liability to its owners. Often incorrectly called a "limited liability corporation" (instead of company), it is a hybrid business entity having certain characteristics of both a corporation and a partnership. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. It is often more flexible than a corporation and it is well-suited for companies with a single owner.
LLCs may be either member-managed or manager-managed. A member-managed LLC may be governed by a single class of members (in which case it approximates a partnership) or multiple classes of members (in which case it approximates a limited partnership). Choosing manager management creates a two-tiered management structure that approximates corporate governance with the managers typically holding powers similar to corporate officers and directors. The LLC's operating agreement (the LLC version of a partnership agreement or a corporation's bylaws) determines how the LLC is managed. Corporations, S-corporations, Limited Liability Partnerships, Limited Partnerships, Limited Liability Limited Partnerships, and LLCs lie along a spectrum of flexibility with LLCs being the most flexible, and thus preferable, for many businesses.
Advantages of an LLC
- An LLC can elect to be taxed as a sole proprietor, partnership, S corporation or C corporation, providing much flexibility.
- Limited liability, meaning that the owners of the LLC, called "members," are protected from some liability for acts and debts of the LLC, but are still responsible for any debts beyond the fiscal capacity of the entity.
- Much less administrative paperwork and record keeping than a corporation.
- Pass-through taxation (i.e., no double taxation), unless the LLC elects to be taxed as a C corporation.
- Using default tax classification, profits are taxed personally at the member level, not at the LLC level.
- LLCs in most states are treated as entities separate from their members, whereas in other jurisdictions case law has developed deciding LLCs are not considered to have separate legal standing from their members.
- LLCs in some states can be set up with just one natural person involved.
- Membership interests of LLCs can be assigned, and the economic benefits of those interests can be separated and assigned, providing the assignee with the economic benefits of distributions of profits/losses (like a partnership), without transferring the title to the membership interest (see, for example, the Virginia and Delaware LLC Acts).
- Unless the LLC has chosen to be taxed as a corporation, income of the LLC generally retains its character, for instance as capital gains or as foreign sourced income, in the hands of the members
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Limited Liability Company (LLC)
