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Limited Liability Company or LLC



A Limited Liability Company (LLC) has characteristics of a corporation and a partnership. An LLC allows its owners not to be personally liable for debts or liabilities of the business like a corporation, but have the tax benefits of partnerships. The owners of an LLC are called members which are somewhat analogous to shareholders. A member can be a natural person, a corporation, a partnership, or another legal association or entity. Unlike corporations or sole proprietorships, which may be formed by only one person, in most states, LLC's must be formed and managed by two or more members. The members may run the LLC themselves or through appointment of managers, who have similar levels of fiduciary duty to the LLC as do Directors of a corporation.

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LIMITED LIABILITY COMPANY TAX BENEFITS

 


Be sure to always consult your accountant since tax laws change with time and jurisdiction. That said, generally an LLC allows profits to be passed through to the owners as income tax like a partnership, rather than as in a corporation where the corporation pays taxes on the income and then the owners, if they receive salary, pay tax on their salaries also.

Like other businesses, an LLC needs to have a license to do business in towns in which it has offices and may use an assumed name, so that Blow LLC could operate as Blow Holes.

Members' interests may be freely transferred to nonmembers, however that member receives only the financial benefit of the membership and does not become a member unless admitted by unanimous vote. The interest of a member in the business is in proportion to his or her capital contribution to the LLC.

The death of a member dissolves the LLC unless otherwise stated in the operating agreement.


 

DISADVANTAGES OF LIMITED LIABLITY COMPANY

 


LLC's have similar formation, state registration, agent for service and other costs and corporate procedures to corporations. As there is no state law structure of shareholders, directors and officers already established as with corporation, and unless the state has other regulations, the LLC members create their operating structure and have an operating agreement. This typically adds additional attorneys fees for drafting the operating agreement, or otherwise increases risk of operating without one or with a poorly drafted agreement.

LLC's vary in legal requirements and liabilities by state and do not have the easy of transfer and investment that a corporation structure provides and therefore are some times regarded as less preferable to C or S corporations.




Readers are cautioned not to rely on this article as legal advice as it is no substitution for a consultation with an attorney and an accountant in your jurisdiction. Based on jurisdiction and time, the law varies and changes.


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