What is a Limited Liability Company?

A limited liability company or "LLC" is a business ownership that is an amalgam between partnership or sole proprietorship and corporation. LLCs are appropriate for smaller companies with limited number of owners. Similar to owners of partnerships or sole proprietorships, LLC owners report company profits or losses on their individual income tax returns. Similar to the corporations, LLC owners are sheltered from personal liability. This is known as "limited liability". This implies that if the LLC owes money or faces legal proceedings, only the assets of the company are at risk. Creditors cannot approach the personal property of the LLC owners. LLC combines the best features of both partnership and corporate business structures.

The number of members in LLCs is unrestricted and they may be persons, corporations or other LLCs. The members have ownership interests in the business and not shares. It is the ideal choice, as it has the tax benefits of the limited partnership and the limited liability constituent of corporations.

LLCs are a separate legal body and liabilities do not pass on to owners. The administration and organization of LLCs are flexible and are governed by the Membership Agreement. Owners manage LLC s and all them vote on all matters. The owners elect one or more managers, much like a board of directors. These managers manage the business, liberating the owners from voting on every operational detail. A single owner LLC has to file as sole proprietorship, while a multi-owner LLC may opt to be taxed.

The LLC is a pass-through entity, which means that there is no double taxation. In LLCs, every member's contribution to the net profit or loss for the year passes through to the individual taxpayer's 1040 individual tax return. Attorneys usually prefer LLC s, as they provide better asset protection to members.