See Also:
S Corporation
General Partnership
Limited Partnership
Partnership
Sole Proprietorship
Role of a Company Back Office
Limited Liability Company (LLC) Definition
A Limited Liability Company or LLC is a business form which provides limited liability much like a corporation. There can be an unlimited number of members to the company. There are also many tax benefits that emerge from forming this type of business.
Limited Liability Company (LLC) Meaning
A Limited Liability Company means that it contains the same barrier to personal liability for actions by an employee or member of the company unless there is a case of fraud or gross negligence. Members are unlimited, but there are limitations in that all members must be domestic. In addition, a member can be anything like a private equity group, corporation, or any individual as long as they are an American citizen.
Advantages of a Limited Liability Company (LLC)
Limited Liability Company (LLC) advantages range from taxes to the limited exposure by members discussed above. There are tax benefits in that an LLC has the choice of being taxed like a partnership or a corporation. The first option means that the profits and losses will flow through to the members, but this all depends on ownership percentages or an agreement by contract. Therefore, the IRS only taxes members once at the individual level. An LLC can choose to be taxed as a corporation as well. This means that the company would have certain salaries for its members and the actual entity will taxed as a whole.
Another large benefit of the Limited Liability Company is the ability of the company to own its own intellectual property. Because this is a private form, there is also greater protection from being acquired by other companies. This allows the company to grow at its own pace and make decisions without having to worry about pursuit of other companies.
Disadvantages of a Limited Liability Company (LLC)
One disadvantage of an LLC is the cost; it’s typically more expensive to operate than partnerships and/or proprietorships. There are annual state fees when you operate an LLC. In addition, banks usually have higher fees for LLCs than they do for other entities.
Another disadvantage is that you need to separate all records – business vs. personal. The money, meeting minutes, structure, and records all needs to be separate.
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Originally posted by Jim Wilkinson on July 24, 2013.
