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What is an LLC - Limited Liability Company?

The organization and structure of a Limited Liability Company, LLC, combines elements of both incorporation and partnerships. Forming an LLC is more involved than establishing a partnership, but it is less complicated than the creation a corporation. Once the LLC is formed, its business name can be used to file for a tax identification number and to open a company banking account, credit line, etc.

Like a corporation, an LLC provides limited liability protection. And, like a partnership, the LLC allows profits and losses to pass through the company to the members/owners, without direct taxing of the company itself.

How is a limited liability company different from a corporation?

Pros
  • An LLC is not taxed directly. Members/owners are taxed.
  • No board of directors or annual reports are required.
  • Regular meetings with recorded minutes are not mandated.
  • Owners are members, not shareholders.
  • There are no limits on the number of members.
  • Income does not have to be reported until it is received.
  • Membership interests can be put into living trusts.


  • Cons
  • Owners may owe more taxes on profits.
  • Owners must immediately declare profits.
  • All fringe benefits - medical insurance etc. - are taxable
  • How is a limited liability company different from a partnership?

    Pros
  • Owners are usually not liable for company debts.
  • It is easy to admit new members.
  • Different membership categories can be created.
  • Sale of an ownership interest will not disrupt the business.


  • Cons
  • Costs more to set up, and has annual maintenance fees.
  • Requires formal organization and mandated paperwork.
  • Requires vigilant record keeping.


  • Filing the documentation to create a limited liability company does not require a lawyer. But, if a lawyer, accountant or financial advisor is not consulted, it is very important to thoroughly research all of the options that are available for structuring the LLC. Tax benefits and liability protections rely on careful attention to the rules and regulations that govern all aspects of the limited liability company model.


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