LIMITED LIABILITY COMPANY / LLC

What is a limited liability company or LLC?

An LLC, or Limited Liability Company, is a type of legal business structure that combines the limited liability protection of a corporation with the simplified management and tax flexibility of a partnership or sole proprietorship. It is a relatively new form of business, created in Wyoming in 1977, and is now recognized throughout the United States. Here are some key characteristics of an LLC:

1. Limited Liability: Like a corporation, an LLC provides its owners (referred to as "members") with limited liability protection. This means that the personal assets of the members are generally protected from the business's debts and liabilities. In most cases, members are only at risk of losing the amount they invested in the LLC.

2. Pass-Through Taxation: By default, an LLC is not taxed as a separate entity like a corporation. Instead, its profits and losses "pass through" to the individual tax returns of the members. This means that the LLC itself does not pay taxes, but the members report their share of the profits or losses on their personal tax returns.

3. Flexibility in Management: Unlike corporations, which have a more rigid management structure with a board of directors, officers, and shareholders, an LLC offers greater flexibility in how it is managed. Members can choose to manage the LLC themselves or appoint a manager to handle day-to-day operations.

4. Ownership and Membership: Ownership in an LLC is represented by membership interests, similar to shares in a corporation. Members can be individuals, other companies, or even foreign entities. There is usually no restriction on the number or type of members an LLC can have.

5. Perpetual Existence: Like a corporation, an LLC has the potential for perpetual existence. It can continue to operate even if ownership changes or if members pass away.

6. Simplified Recordkeeping: Compared to corporations, LLCs typically have less stringent recordkeeping requirements. They are not usually required to hold annual meetings or keep detailed minutes.

7. Flexible Profit Distribution: LLCs have flexibility in how they distribute profits among members. This can be based on ownership percentages or according to an agreement among the members.

8. Formation and Compliance: Forming an LLC involves filing articles of organization with the appropriate state agency. In addition to initial filing requirements, LLCs are also subject to ongoing compliance and reporting requirements, which vary by state.

9. Limited Transferability of Interests: Membership interests in an LLC are not as freely transferable as shares in a publicly traded corporation. Typically, members need approval from other members to transfer their ownership interests.

10. Regulation and Governance: While LLCs offer flexibility in management, they may also have fewer formalities and governance requirements compared to corporations. However, they are still subject to state-specific regulations.

It's important to note that specific rules and regulations regarding LLCs may vary by jurisdiction, so it's recommended to consult legal and business resources specific to your location.