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Starting Your Business
What is a Limited Liability Company (LLC)?
by InvestorGuide Contributor (Write for us!)
(Click on the links within the article to get definition of that word)
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.
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:
LLCs have a limited life and are usually dissolved when a member dies, or if the company facesbankruptcy.
LLCs cannot go public, as there are no shares or shareholdings. For the same reason, issuing shares to employees through stock options is not possible.
Even though the paperwork and the complexities associated with LLCs are significantly less than those required for forming a corporation, its formation is still substantially more complex than a partnership or sole-proprietorship.
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 operatingagreement, which is not compulsory in most states, but is highly recommended. This document explicitly states the rights and responsibilities of the LLC owners.
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