The Limited Liability Company

A limited liability company (LLC) is a legal business entity that is separate and apart from its owners (members). LLCs combine some of the best advantages of a partnership with the advantages of a corporation. Each state passes laws that govern the creation and operation of an LLC.

Advantages of an LLC include:

• LLCs may choose to be taxed as a sole proprietorship (pass-through entity) or a partnership.Owners have limited liability.

• They are not liable for the company’s obligations or debts.LLCs are relatively easy to set up through the state’s Secretary of State’s Office.

• Members are not required to conduct annual meetings and have very few ongoing formalities or corporate filings with the state.

• LLCs offer a great deal of flexibility in how the LLC is managed.

• LLCs can be converted to a corporation if the company outgrows the limitations of an LLC.You may create a single-member LLC or create an LLC with multiple members.

• Flexibility to adopt different tax structures

• Potential to earn tax deductions for business losses

• Responsibility for business liabilities doesn't belong to shareholders

• Ability to restructure without seeking regulator approval

  Disadvantages of an LLC include:

• LLCs are typically not suitable for companies that want to seek venture capital or pursue an initial public offering in the future.

• Some professional groups may not be permitted to operate an LLC.

• Transferring an interest or accepting new members can be difficult, depending on the terms of the operating agreement.

• Members may be held liable for company obligations in some cases.

• It can be challenging to raise capital for this type of business.

• This can be more expensive to form than other structures.

• The salary and profits are often subject to self-employment taxes.