Limited liability company

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Business law
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Business organizations
Basic forms:
Sole proprietorship
Corporation
Partnership (General · Limited · LLP)
Cooperative
USA:
Business trust · LLC · LLLP Delaware corporation Nevada corporation
UK/Commonwealth:
Limited company (By shares · By guarantee) (Public · Proprietary)
Civil law countries:
AB · AG · ANS · A/S · GmbH
K.K. · N.V. · OY · S.A.
European Company Statute
Doctrines
Corporate governance
Limited liability · Ultra vires
Business judgment rule
De facto corporation and corporation by estoppel
Piercing the corporate veil
Related areas of law
Contract · Civil procedure

A limited liability company (denoted by L.L.C. or LLC) is a legal form of business company in the United States offering limited liability to its owners. In that respect, it is similar to a corporation, and is often a more flexible form of ownership, especially suitable for smaller companies with a limited number of owners. Unlike a regular corporation, however, a limited liability company with one member is treated as a disregarded entity (or sole proprietorship) and a limited liability company with multiple members is typically treated as a partnership for tax purposes, thereby avoiding double taxation. It is often incorrectly called a "limited liability corporation" (instead of company).

LLCs were first enacted by the state of Wyoming but can now be created under the laws of any U.S. state. They were chiefly inspired by the GmbH, a type of business organization in Germany, and by limitadas, a type of business organization available in many Latin American countries.

1 Advantages
2 Disadvantages
3 Other countries
- 3.1 United Kingdom and Ireland
- 3.2 Japan
4 See also
5 External links

[edit] Advantages

No requirement of an annual general meeting for shareholders (in some states, such as Tennessee and Minnesota, this statement is not correct. In other states, including Georgia, there have been courts who have suggested limited liability companies should maintain corporate formalities, including annual meetings, in the same manner as corporations so as to maintain the limited liability protection afforded to shareholders in a corporation).
No loss of power to a board of directors (although an operating agreement may provide for centralization of management power in a board or similar body).
Corporations are enduring legal business entities, with lives that extend beyond the illness or even death of their owners, thus avoiding problematic business termination or sole proprietor death. Planning for the death of an owner of an LLC is sometimes more difficult, though there are significant planning opportunities to lessen the impact of estate, gift, and income taxation.
Much less administrative paperwork and recordkeeping.
Pass-through taxation (i.e., no double taxation), unless the LLC elects to be taxed as a corporation using IRS Form 8832.
Limited liability (meaning that the owners of the LLC, called "members," are protected from liability for acts and debts of the LLC).
Using default tax classification, profits taxed personally (at the member level, not at the LLC level).
Check-the-box taxation. An LLC can elect to be taxed as a sole proprietor, partnership, S-corp or corporation, providing much flexibility.
Can be set up with just one natural person involved (but then, single shareholder corporations are allowed in many states).
Membership interests of LLCs can be assigned, and the economic benefits of those interests can be separated and assigned, providing the assignee with the economic benefits of distributions of profits/losses (like a partnership), without transferring the title to the membership interest (i.e., See VA and Delaware LLC Acts).
LLCs in some states are treated as entities separate from their Members (See VA LLC Act), whereas in other jurisdictions case law has developed deciding LLCs are not considered to have separate juridical standing from their members (See recent D.C. decisions).

[edit] Disadvantages

Many states, including Alabama, California, Kentucky, New Jersey, New York, Pennsylvania, Tennessee, and Texas, levy a franchise tax or capital values tax on LLCs. In essence, this franchise or business privilege tax is the "fee" the LLC pays the state for the benefit of limited liability. The franchise tax can be an amount based on revenue, an amount based on profits, or an amount based on the number of owners or the amount of capital employed in the state, or some combination of those factors, or simply a flat fee, as in Delaware. Effective in Texas for 2007 the franchise tax is replaced with the Texas Business Margin Tax. This is paid as; tax payable = revenues minus some expenses with an apportionment factor.
It may be more difficult to raise capital for an LLC, as investors may be more comfortable investing funds in the better-understood corporate form with a view toward an eventual IPO.
The possible lack of any operating agreement requirement can cause problems
Some people, such as new business people, may not be familiar with the governance of LLCs. Unlike corporations, they are not required to have a board of directors or officers.
The principals of LLCs use many different titles -- e.g., member, manager, managing member, chief executive officer, president, partner -- some of which are not correct. As such, it can be difficult to determine who actually has the authority to enter into a contract on the LLC's behalf.

[edit] Other countries

[edit] United Kingdom and Ireland

In 2002, the UK legislated limited liability partnerships ("LLPs") into existence, which approximate LLCs in the USA (unlike private company limited by shares, Ltd. or P.L.C.). Member partners are taxed at the partner level, yet the LLP provides limited liability for the member partners.