A limited liability company, commonly known as an “LLC,” is a state licensed business entity that is a hybrid cross between a simple partnership and a corporation. Partners in a limited liability company enjoy the freedom of a partnership while avoiding the personal legal liability that might occur in the course of their everyday business.
Up until 2002, many European countries allowed public and private “limited companies,” but their structure and the rules they endured for taxation were quite different from what we know in the United States as a limited liability company. In 2002, however, the limited liability partnership (LLP) came into existence in England as an entity that is functionally similar to the limited liability company on the “west side of the pond.”
In the US, the first state to adopt the limited liability company as a legal entity was Wyoming in 1985. Since then, tens of thousands of LLCs have sprung up and all 50 states are in the mix.
The major advantage of the limited liability company is the way it is taxed. The partners in a limited liability company can elect to be taxed just like a "C Corporation," which means that the limited liability company will pay taxes on its profits just like a corporation and at the same tax rate as a corporation. On the other hand, the partners in a limited liability company can elect “'pass-through taxation,” which means that the money that is retained as profit is passed on (distributed) to the limited liability company's members. With this method of taxation, each member is responsible for paying his or her personal tax on that "income." This last option means that the limited liability company, as an entity, pays no tax.
