Limited Liability Company

Mickey | Financial Services | Monday, November 22nd, 2010

Limited Liability Company

 

A limited liability company (LLC) is a type of business ownership that has the characteristics of corporation and partnership or sole proprietorship. It is legal and it provides limited liability to its owners. The term used to describe the owners of the LLC is members. The members can be corporations, individuals, other LLCs or even a single member.

Single member LLC was not initially accepted but now all the states are allowing the formation of it. But one needs to understand the specific rule for each state since some states has rules that are differing. LLC offers the benefit of pass through taxation.

In LLC the owners are protected from liability for debts a feature that is known as “limited liability”. This means the owners does not need to risk their personal property in case of debts. Only the assets of the business are at risk. LLC has flexible distribution of profit. The paper work and record keeping is very less in LLC. The LLC can choose to be taxed as corporation or partnership or sole proprietorship and hence offers good flexibility.

You can have the tax advantage and avoid double taxation. The pass through taxation of a partnership or sole proprietorship is combined with the corporation’s limited liability in LLC.

Some of the disadvantages of LLC are mentioned. When a member dies LLC faces bankruptcy which is a disadvantage. If the business has plans of going public with their company a corporate business structure maybe best not LLC. Running a LLC maybe more complex. Lending organizations are comfortable to lend more defined business like the corporation and hence raising capital for LLC maybe difficult.

The District of Columbia thinks LLC as taxable hence the benefits of flow through taxes are removed. LLC may have to pay the franchise tax or the margin tax in many states. This fee has to be paid because of the benefit of limited liability. From the Secretary of State office get the articles of organization form in order to setup the LLC. Fill out the articles of organization form and submit it with the appropriate filing fee. Then draft an operating agreement.

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