Limited Liability Company (LLC)

The Limited Liability Company (LLC) is a business entity organized under state law that offers limited liability like a corporation along with the possibility of "pass-through" taxation, unless it elects corporate treatment for federal tax purposes. Therefore, an LLC is a cross between a partnership and a corporation. An LLC is owned by one or more interest holders called "members" and any member can exercise management rights. However, an LLC also allows the members to manage the entity or to designate specific managers who may or may not be members, to manage the entity as is done in many corporations. Like a corporation, an LLC has the advantage of "perpetual" existence — its business operations can continue despite the death of someone who owns a business interest. Ownership interests are transferred easily from one member to another.

Liability
As its name implies, the LLC provides limited liability for its owners similar to shareholders in a corporation. The LLC owner risks only their investment in the business. Other personal assets are not a risk, unless the owner has personally guaranteed the debt.

Taxes
Under new IRS regulations, the LLC with more than one member will be taxed as a partnership unless it elects to be taxed as a corporation and the LLC with only one member will be disregarded for tax purposes. If it is treated as a partnership, the LLC's earnings will be apportioned to its owners and taxed at their personal tax rates, similar to the tax treatment of a limited partnership. However, it is possible to elect corporate tax treatment, whereby it will be taxed as a corporation.

Administration

The process of creating an LLC closely resembles the process of creating a corporation. State law requires that "Articles of Organization" be filed with the Secretary of State. An LLC has an "operating agreement" which, like the agreement of partnership or LP, determines the conduct of the business, including the rights and powers of its members, managers, and employees and which generally allows the members to structure the company's affairs as they see fit, rather than as a statute requires.