Two common types of limited liability companies are sole proprietorships and partnerships. LLCs have some tax benefits, such as allowing pass-through taxation and management flexibility. Every state in the United States and the District of Columbia allow for the formation of limited liability companies. A limited liability company may be called a limited liability corporation, which is incorrect terminology. The correct terminology is “company,” not “corporation.”
Organization of the Limited Liability Company
Limited liability companies are common for a small business with a single owner. Owners are called members though they are similar to shareholders. An LLC can have one member—the owner of a sole proprietorship. An LLC can also have two or more members in a partnership. These members can only lose the amount of capital they invested in the company. That is the beauty of limited liability. The membership interest is similar to shares of stock. Members have control over the LLC in direct proportion to the number of shares or units of membership they own. The management of an LLC is regulated by state laws and may vary from state to state. Setting up an LLC is slightly more involved than establishing a sole proprietorship but not as challenging as setting up a corporation. You must file Articles of Organization with the Secretary of State of the state where you choose to exist. Also, you should have an Operating Agreement though it may not be required nor filed, depending on the state. The Operating Agreement specifies the rights of the members and the management structure of the LLC.
Advantages of a Limited Liability Company
Disadvantages of a Limited Liability Company
A limited liability company is an option that small business owners should look at when deciding on their business structure. The small business owner should consider all the taxation, accounting, and legal ramifications before making a decision.
