Limited Liability Company (LLC)

A Limited Liability Company (LLC) is a relatively new form of business in the United States, and is formed under state law by filing articles of organization.  It is neither a Sole Proprietorship, a Partnership nor a Corporation, and owners are referred to as Members, rather than Partners or Stockholders. This form of business provides its owners (the members) with a very flexible and adaptable form of business organization that provides liability protection similar to the protection provided by incorporation of a business unit.

When forming or changing their form of business, most small business owners have two specific goals in mind; taking maximum advantage of IRS tax law, and "insulating" their personal assets from potential business-related legal actions.  Considering the following, an LLC will often meet both needs:

• An LLC can be established at moderate cost in a relatively short time.
• Management by all members, by one or more members, or by a non-member individual or business entity is allowed. (The management arrangements are specified in the articles of organization.)
• The Members are not personally liable for company debts (other than taxes)
• Even though a separate legal entity (like a Corporation), it is by default considered to be (and taxed as) a Sole Proprietorship, thus taking advantage of "flow through" tax benefits.
• If owned by two or more Members, it is by default considered to be (and taxed as) a Partnership
• If and when to its advantage, the LLC can elect to be considered and taxed as a Corporation.
• Unlike Corporations, there is no statutory requirement to keep exhaustive minutes, hold meetings, or make resolutions to stay legal.
• Ownership interests can be transferred using procedures described in the articles of organization or operating agreement, or by consent of a majority in interest. Thus, the members have a high level of flexibility in setting up or modifying business arrangement.

For these reasons, the Limited Liability Company is rapidly becoming the entity of choice for small to medium businesses.

Possible Limitations of an LLC:

• Limited experience of individuals and professional advisers with the realities of organizing, operating, transferring, dissolving and defending LLCs may be the most important single concern about this form of business organization.
• Some lenders have had limited experience with lending to LLCs, and may be reluctant lending commitments.
• It may be more difficult to correctly anticipate ownership and management issues that arise during LLC operations, and to develop useful outcomes to those issues. However, experience is accumulating rapidly.

Thus, it appears that if the LLC form of business organization is suitable for the business activity under consideration, it can be used with confidence by interested persons.