LLC Limited liability company (LLC) is a US-specific form of a private limited liability company. This is a financially transparent organization that combines a partnership (partnership) and a limited liability company. An LLC is a hybrid legal entity that has certain characteristics of a corporation, LLC, and sole trader.
It is a legal entity that combines the characteristics of a partnership, sole trader and corporation. It is also characterized by pass-through taxation, as well as for partnerships. It offers the member limited liability, just like a corporation. Like a sole proprietorship, an LLC has only one member.
The Limited Liability Company or LLC is a relatively new business structure, first introduced in Wyoming in 1977 and now recognized by every state statute and the IRS.
An LLC is neither a partnership nor a corporation, but a specific type of business structure that offers an alternative to these two traditional entities by combining the corporate benefits of limited liability with the pass-through taxation benefits typically associated with partnerships.
Limited Liability Companies are becoming more and more popular and it's easy to see why. In addition to combining the best features of partnerships and corporations, LLCs avoid the main disadvantages of both of these business structures. Limited Liability Companies are much more flexible and require fewer current paperwork than corporations to maintain them while avoiding the personal liability risks that come with partnerships. Some examples of well-known LLCs may surprise you - both Amazon and Chrysler are organized as limited liability companies.
The owners of an LLC are called "participants". Because most states do not restrict ownership, members can be individuals, corporations, and other LLCs—domestic or foreign. Usually LLCs can have an unlimited number of members. Most states also allow so-called "single-user" LLCs that have only one owner.
Members in an LLC are similar to partners in a partnership or shareholders in a corporation, depending on how the LLC is run. A member will be more like a shareholder if the LLC chooses to be managed by a manager or multiple managers, because then those members who are not managers will not be involved in the day-to-day running of the company. If the LLC does not want to use managers, the members will closely resemble partners because they will have a direct say in the company's decision-making process.
An LLC with more than one person or entity is called an LLC with multiple members. All states also allow one-sided LLCs - those with only one owner (member). By default, a single member LLC is taxed as a sole proprietorship (in other words, the IRS is considered an "ignored person"), and a multi-member LLC is taxed as a partnership by default.
An LLC is a relatively new type of business structure that combines the best features of a corporation with those that are solely owned by owners or a partnership. An LLC has many benefits that cannot be used together in any other business.
An LLC is a separate entity from its owners. Being a legally distinct entity, each owner's personal assets (such as a house, car, or personal bank account) are not available to business lenders. The liability of an LLC member is generally limited to the amount of money that the person has invested in the LLC. Thus, members of an LLC are offered the same limited liability protection as shareholders of a corporation.
LLCs allow pass-through taxation, and this advantage is one of the main reasons for the popularity of LLCs. Pass-through taxation means that an LLC's income is only taxed once, primarily treated as income from a partnership, sole trader, or S-Corporation. While neither partnerships nor sole proprietorships provide limited liability protection either, an S-Corporation is the closest match for an LLC. However, the S-Corporation is a much more restrictive business structure that is harder to maintain.
An LLC makes it easy to sell ownership to third parties without disrupting the business. By comparison, selling interests in a sole proprietorship or general partnership takes much more time and effort. The owner must individually transfer assets, business licenses, bank accounts, permits and other legal documentation. The transfer of ownership in S-Corporations is also burdened with many restrictions.
LLCs have no limits on the number or types of owners. By comparison, S Corporations cannot have more than 100 shareholders, and each of them must be a resident or citizen of the United States. None of these restrictions apply to LLCs.