What is an LLC?
LLC incorporation has become a very popular form of incorporation over the years. What is an LLC?
Wikipedia says an LLC is…
“A limited liability company (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.”
Here’s another definition for LLC…
A limited liability company (LLC) offers protection from personal liability for business debts, just like a corporation. However, unlike a corporation, which must pay its own taxes, an LLC is a pass-through tax entity: The profits and losses of the business pass through to its owners, who report them on their personal tax returns just as they would if they owned a partnership or sole proprietorship. Moreover, while setting up an LLC is more difficult than creating a partnership or sole proprietorship, running one is significantly easier than running a corporation.
USLegal.com gives a comprehensive definition that sums it up…
The limited liability company or LLC is not a partnership or a corporation. It is a business structure that is a hybrid of a partnership and a corporation. Its owners are shielded from personal liability and all profits and losses pass directly to the owners without taxation of the entity itself. To form an LLC, articles of organization must be prepared and filed with the state and filing fees, initial franchise taxes, and other initial fees must be paid.
An LLC is owned by its members. They are analogous to partners in a partnership or shareholders in a corporation, depending on how the LLC is managed. A member will more closely resemble shareholders if the LLC utilizes a manager or managers, because then the members will not participate in management. If the LLC does not utilize managers, then the members will closely resemble partners because they will have a direct say in the decision making of the company. An LLC can have an unlimited number of members (owners) and non-US residents can be members of an LLC. LLCs are allowed to have subsidiaries without restriction and can be owned by another corporation. A corporation requires formalities, annual meetings of shareholders and directors are required each year and meeting minutes are required to be kept with the corporation’s records. LLCs are not required to hold such meeting; however, it is a good idea to document major decisions of the company.
While a corporation’s existence is perpetual, an LLC typically has a limited life span. Most states require that an LLC list a dissolution date in its articles of organization and certain events such as the death or withdrawal of a member can cause the LLC to dissolve. Also, typically the approval of the other members must be received to transfer shares in an LLC.
