What Does LLC Mean? It Is a Limited Liability Company

What does LLC mean? LLC or limited liability company as the name implies provides the owner or owners with limited liability that will help protect their personal assets from business losses, should they occur. Often, this business structure is erroneously referred to as a limited liability corporation. What does LLC mean exactly? The LLC is that it is a hybrid form business entity with some characteristics of the corporation and some of the sole proprietorship or partnership, depending on how many owners the LLC has. If you decide to look at how to form an LLC or start an LLC, remember that the most prominent characteristics of the LLC is the limit on liability, tax pass-throughs and a lot less paperwork than with the corporate structure. It also has the flexibility of the sole proprietorship or the partnership. There is a lot of flexibility in a sole proprietorship, but also a lot of risk

What Does LLC Mean?

The owners of a limited liability company are called “members” rather than shareholders as is the case with a corporation. At the time that the members form the limited liability company, they agree as to how long the LLC will run or exist. (The time limit on the LLC can be extended at the time of expiration by a vote of its members.) LLCs cannot have more than two of the four characteristics of a corporation, which include: limited liability to the extent of assets, continuity of life, centralization of management and free transferability of ownership interests. The limited liability company is taxed as a partnership in most cases. If the LLC has more than two of the four characteristics mentioned above, corporate forms must be used.

What Does LLC Mean? The Advantages

The LLC has a number of advantages over other forms of business structure but individual states have their own rules:

  • There is a great deal of flexibility in how the LLC can be taxed including as a sole proprietorship, partnership, S Corporation and C Corporation
  • The owners of the LLC, depending on state shield laws, are protected from some or all liability for acts and debts of the LLC.
  • There is a lot less paper work than a corporation.
  • In most states the LLC is treated as a separate entity
  • LLCs in some states can be set up as an entity with just one natural person involved(single member LLC).
  • Membership interests can be assigned and the economic benefits of those interests can be separated and assigned. (See LLC in Delaware for a good discussion of this).

What Does LLC Mean? The Disadvantages

  • Most states do not demand a written operating agreement but an LLC that operates without one can run into problems.
  • It is typically easier to raise money for a corporation, which is better known by most investors than the LLC.
  • If your intent is to take the business entity public, it is typically recommended that you use a corporate structure rather than that of an LLC.
  • There is more complexity to an LLC than either a sole proprietorship or a partnership, although some partnerships can become very complex.
  • Many states levy a franchise tax on LLCs,
  • Lenders may require members of a new LLC to personally guarantee the loans of the entity.
  • Many people are unfamiliar with the management structure of the LLC because they do not have to have a board of directors.

Limited Liability Company Resources

Definition of limited liability company (LLC) – What is the limited liability company and what’s involved in its formation? It is the newest form of business structure in the U.S. with most formed by statutes and acts of state legislatures in the 1980s and 1990s. There are critical tax advantages of LLCs. The Internal Revenue Service(IRS) gave a big help and boost to LLC form of structure in a 1988 ruling in which it declared that they could be taxed as partnership agreements: that means tax liability is passed through on each partner’s individual tax return. This information quickly led to most states okaying LLC formations and laws in their jurisdictions. About 1996, Vermont was the last state to okay setting up LLC’s and the LLC can now be set up in the UK and Germany. Registering for an LLC requires working through the state (click on your state’s business section listing above on this page to get online information). What are the benefits of an LLC? What type of asset protection do they offer? The LLC is a legal agreement or document described as a hybrid structure that combines the asset protection of a corporation and the tax pass-through or taxation advantages of a partnership or sole proprietorship. Unlike the corporation, the LLC is very flexible. For example, a company start up might begin life as an LLC and then amend itself later to be a corporation. A quick search of the internet reveals many free directories, books, website links, faqs, tips, tactics, techniques and other resources to search out information and requirements on LLCs. There are many advantages to the LLC. For example, unlike the corporation, there are not annual meetings required or the same burdensome level of paperwork. The LLC uses an operating agreement. There are no shareholders but rather members. There is a professional LLC and a non-profit or not-for-profit LLC that can be set up as well that might be the proper structure for some groups.

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