What is an LLC?
A limited liability company (LLC) is a relatively new business entity, at least in the United States. Its basic features are that its owners have limited liability for the entity’s debts and obligations, similar to the status of shareholders in a corporation, and its income and losses are normally passed through to the owners as if it were a partnership. It is probably most like a limited partnership, without the requirement that there be at least one general partner liable for the debts and obligations of the partnership.
The LLC has some of the attributes of a sole proprietorship, a general partnership and a corporation. For tax purposes, it is treated as a partnership unless an election is made to be treated as a corporation. The LLC has members rather than shareholders. It has a manager or managers instead of a board of directors. Management may be vested in the members or it may be vested in a professional manager or managers. It is essentially a business entity created by contract between the members, much as a general partnership. However, in order to be legally recognized, it must file Articles of Organization with the Department of State. The members are protected from personal liability for the acts of the LLC, much like shareholders of a corporation. The affairs of the LLC are governed by an Operating Agreement adopted by the members of the LLC. The LLC differs from an “S” corporation in that it is not restricted in the number or types of individuals or other entities which may be members. It
A Limited Liability Company (LLC) is a type of business entity that has been available in the U.S. since Wyoming first adopted LLC laws in 1977. The LLC combines corporate-type liability protection for its owners (called “members”) and managers, and provides partnership-type taxation. The LLC is the most popular type of new business entity being formed today, due to the many advantages that it offers, including: 1. A single level of taxation, which eliminates double-taxation associated with profit distributions from C corporations; 2. The ability to pass-through losses to investors, which may offset other income; 3. The ability to make special allocations of income, gain, deductions, credits and loss to specific members; 4. No Personal Holding Tax, even if all of the passive income is retained in the LLC; 5. Liabilities and debts of the LLC increase the member’s tax basis in their ownership interest; 6. An LLC can elect to step of the basis of its assets upon the death of member or the
(back to top) Corporations are formed pursuant to state law and have shareholders, are managed by a board of directors, and the daily affairs are administered by officers. Similarly, a limited liability company (LLC) has members and may be managed by one or more managers. Most often, both entities must pay franchise taxes, but may have different federal tax liabilities. Generally, most people form corporations or limited liability companies in order to shield the shareholders or members and officers or managers from personal liability for the debts and obligations of the entity. There may also be various tax advantages to forming these entities which may not be available for sole proprietorships and general partnerships.
What is it? The acronym LLC stands for “limited liability company.” It is a type of business entity formed under Missouri state law by filing articles of organization as an LLC with the Corporations Division of the Missouri Secretary of State’s office in Jefferson City. (More on the filing process later.) LLC is one of several forms of legal business organization. Other general forms are sole proprietorship, partnership and corporation. Any individual or group forming a business must decide which form of business organization to adopt. The LLC form of organization is one option.
Related Questions
- SHOULD THE SHARED OR FRACTIONAL OWNERSHIP USE A LIMITED LIABILITY COMPANY (LLC), OR LIMITED PARTNERSHIP (LP) OR LIMITED LIABILITY PARTNERSHIP (LLP)?
- ARE THERE ANY RESTRICTIONS ON A PHYSICIAN PRACTICING MEDICINE UNDER A LIMITED LIABILITY COMPANY (LLC) OR LIMITED LIABILITY PARTNERSHIP (LLP)?
- What is an LLC?
