Limited Liability Company (LLC) FAQs
What is a Limited Liability Company or LLC?
A Limited Liability Company is an corporate entity created under and governed by the laws of the state in which it was formed. Limited liability companies provide liability protection as well as the pass-through taxation benefits of partnerships or S corporations. Each jurisdiction has its own distinct set of laws governing LLCs.Is the formation of an LLC different than a standard corporation?
Yes. An LLC file Articles of Organization with the state rather than Articles of Incorporation. Additionally LLCs generally utilize an operating or management agreement to set forth the details on how the organization is to be managed, rather than bylaws. Each state publishes the fee structure for LLC formation on the web site of the Secretary of State of each state.What are the advantages of an LLC?
The most important advantages of an LLC are:- Flexible Management Structure and Income Distribution: An LLC allows the most flexible management agreements, and the most freedom to distribute income in any manner that the members agree upon without the need of additional filings.
- Limited Liability: An LLC provides the same amount of liability coverage as that of a traditional corporation. In general, a member is only liable for the amount invested in the LLC. Articles of Organization form and the LLC fee structure form.
- Pass Through Taxation: Like a partnership or an S corporation the LLC allows for pass-through taxation, which means that the income from the LLC is only taxed at the individual level as opposed to both the individual level and the corporate level as in traditional C corporations.
What are the disadvantages of an LLC?
There are few true disadvantages to the LLC entity, however the most common cited are:- More Paperwork than a partnership: An LLC allows the most flexible management agreements, and the most freedom to distribute income in any manner that the members agree upon without the need of additional filings.
- Dissolution Date: In some states an LLC can only exist for a set number of years; however, this seems to be changing as more and more states allow for unlimited duration LLCs.
- Fund Raising: An LLC does not have the same abilities to raise capital through the equity markets that a C corporation would enjoy.
- Relatively new entity type: The LLC is the newest type of corporate formation and as such there is not as much legal precedent set regarding its activities.
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This information was derived from an article on
WikiFAQ.com.