What is a Limited Liability Company (LLC)?

A Limited Liability Company, also known as an LLC, is a type of business structure that combines traits of both a sole-proprietorship and a corporation. An LLC is eligible for the pass-through taxation feature of a partnership or sole proprietorship, while at the same time limiting the liability of the owners, similar to a corporation.
As the LLC is not considered a separate entity, the company does not pay taxes or take on losses. Instead, this is done by the owners as they have to report the business profits, or losses, on their personal income tax returns. However, just like corporations, members of an LLC are protected from personal liabilities, thus the name Limited Liability.

Limited Liability Companies are recognized in all 50 states and the District of Columbia. In most states any type of business can form an LLC, though some state laws may require at least two members in order to form one.

Advantages of an LLC

Disadvantages of an LLC

While the advantages largely benefit most small businesses, certain aspects of an LLC can prove to be disadvantageous. This is especially true for larger organizations. Some of the disadvantages of an LLC are:In most states, an LLC can be created simply by filing the "articles of organization" and paying the required filing fee. This document is also known as a "certificate of organization" or a "certificate of formation”. Some states have an additional requirement of publishing an intention to create an LLC in a local newspaper. Another part of forming an LLC is the operating agreement, which is not compulsory in most states, but is highly recommended. This document explicitly states the rights and responsibilities of the LLC owners.
By InvestorGuide Staff

Copyrighted 2020. Content published with author's permission.

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