Formation of Limited Liability Companies (LLC)

A limited liability company (LLC) is a business entity that combines features of corporation and partnership structures. Unlike incorporated businesses in which owners are called shareholders, the owners of a limited liability company are called members. The number of members are unlimited. Further, they may be other LLCs, corporations, or individuals. As in the case of corporations, an LLC is a separate entity, in which members are not personally responsible for debts unless they have signed a personal guarantee.

Besides this, limited liability companies have flexible profit distribution, unlike a common partnership with a 50-50, profit split. Further, their business structure does not require corporate minutes or resolutions. It is not as complicated to operate. Unlike corporations, an LLC does not involve double taxation, as all business profits losses, and expenses flow through the company to the members.

When it comes to disadvantages, a limited liability company has limited life. With incorporation allows continuity, an LLC dissolves when a member dies or undergoes bankruptcy. Further, an LLC is not a public company like a corporation. If this is what business owners want, it is better to choose a corporate business structure. Concerning taxes and tax preparation, the classification of limited liability company is complicated, as it can be federally classified as a sole-proprietorship, partnership, or corporation. It depends on the characteristics of the company. Further, the start-up costs of an LLC are higher than that of a corporation, because of the flexibility in operational and structural aspects, which result in complex governing documents. Since the LLC is relatively new type of business entity, its governing laws are not as established as for partnerships and corporations.