What is a Limited Liability Company?

Limited Liability Company's (LLC's) are increasingly becoming the most sought after business structure in most states. It provides, in essence, the flexibility of partnership with the limited liability of a corporation. Though the LLC is a bit more complicated to form then most other entities, it is usually well worth the work and time.

Overview

Owners The owners of an LLC are called members; compare this to shares holder in corporations and partners in partnerships. Number of Owners
The number of members can be unlimited. Members can include individuals, corporations, and even other LLC's. Duration
An LLC has a limited or an infinite duration: the duration is determined in the incorporating documents, and can later be amended with a vote of the members. Organisation
If an LLC comes to close to the organisation of a corporation, it will usually be treated as the latter. Usually, an LLC cannot carry more then two of the following corporate characteristics: Limited liability to protect the business's assets; continuity of life of the organisation; the centralization and of the management team or members; and the easy and free transfer of the member's ownership interests.

Positive points

Owners have limited personal liability for the LLC's debts and obligations; this is so even when the owner fully participates in the management of the business. The profit and loss of the members can be adjusted and allocated differently. The IRS rules have recently changed to allow an LCC to choose between either being considered a partnership or a corporation, for tax purposes. For the LLC, no corporate minutes or resolutions are required; this saves time and makes the business more efficient.

Negative points

LLC's are usually expensive to start and incorporate when compared to partnerships. State laws are diverse and one state may not offer great benefits for an LLC. Though the federal government will treat the LLC the same, the varying state laws can have a dramatic impact; some states do not even allow for an LLC. Corporations can live in perpetuity; an LLC has a limited duration such as when a member dies or files for bankruptcy. - corporations can go public and dramatically increase revenue and net worth. An LLC cannot go public.