A limited liability company (LLC) is a unique legal entity, which allows participation in a business without risk of liability. It could be considered a hybrid of a corporation and a partnership. However, it is neither one. An LLC is used to provide legal protection to the members of said business. An LLC refers to the owners as members and not owners or partners and they are not considered shareholders. These are important legal considerations where liability is in question. This business structure offers the members protection from any debt the LLC has incurred unless they have personally guaranteed the debt. The members can be individuals or other LLC’s and there is no limit to the number of members that can be in a specific limited liability company.
The limited liability company has a few corporate requirements like minutes and formal meetings. It allows different percentages of profit and write-offs to go to specific members. The profits and losses flow through the limited liability company to the members as set up when the LLC was formed. This feature removes the possibility of double taxation. Unlike a corporation, an LLC can be forced to have a limited life span if one of the members dies or goes through bankruptcy.
All in all, there are many business situations where the structure of a limited liability company is the most flexible way to own the business. Because each member may have different tax exposure, this type of ownership may be more favorable when tax consequences are put into the mix.
