A Limited Liability Company (LLC) is a form of corporation or corporate entity that allows the various individuals involved, as well as the corporation as a whole, to limit their liability as against each other. Simply put, this means that if the LLC accrues debts that it cannot pay, each member of the company is not individually responsible to cover those debts. Similarly, if the company or an individual in the company commits a crime, such as fraud or theft, the other members are more protected from those actions than they would be under a traditional corporate structure. In a conventional corporation, each member, as well as the corporation, can be made liable for the actions and/or debts of the individual members and/or the corporation.
An LLC is a relatively new way to incorporate and the flexibility allowed makes it more desirable for smaller or single-owner businesses, which may not have deep pockets. The LLC is the most flexible form of incorporation, other forms being the more traditional Corporation, S-Corporation, Limited Liability Partnership (LLP), Limited Partnership (LP), and Limited Liability Limited Partnership (LLLP). There is also the Series LLC, where a separate LLC is formed for different company assets, and the PLLC, which is a Professional Limited Liability Company, generally a group of licensed professionals (doctors, attorneys, etc.) who practice the same profession. The Series LLC is a very new form of corporation, and has been created as a way to protect each asset or business transaction, such as the purchase of real property, separately.
The members or owners of an LLC are not restricted in most states, meaning they can be individuals or corporations. Even other LLCs and foreign entities can be members of the LLC. There is also no limit on the number of owners or members of the LLC. It can have as few as one member, or as many as one hundred members, or more.
LLCs must file Articles of Organization with the secretary of state in the state they choose. Since state laws vary, some of the information required, as well as the filing fees for the Articles of Organization, will be different from state to state, however, the information generally must include company name, the name and address of a statutory agent, and a valid purpose for their business.
An LLC must also draft an Operating Agreement, which will outline the various rights of the members and the company. This document is incredibly important to the smooth operation of the LLC, and should be carefully considered and worded so as to appropriately protect the LLC and its members. The Operating Agreement should also outline the way in which the LLC will be managed, either by the members themselves, or by another person or entity.
Clearly, one reason for incorporation as an LLC is for the tax benefit. The LLC can choose to be taxed in several different ways, as a Sole Proprietor, as a Partnership, as an S-Corporation or as C-Corporation. This flexibility is just another way in which the members of the LLC are able to achieve their desired benefit.
