LIMITED LIABILITY COMPANY (LLC)

Since 1977, an increasing number of states have authorized a new form of business organization called the Limited Liability Company (LLC). The LLC is a hybrid form of business enterprise that offers the limited liability of the corporation but the tax advantages of a partnership. However, as a whole, LLC's are very similar to the S Corporation.

ADVANTAGES OF THE LLC

A major advantage of the LLC is that it is taxed as a partnership: profits are passed through the LLC entity, and taxes are paid personally by the members of the company. Another advantage is that the liability of the members is limited to the amount of their investments. Furthermore, unlike limited partnerships, the LLC does not grant limited liability on the condition that the members refrain from active participation in the management of the company. Yet another advantage is that corporations and partnerships, as well as foreign investors, can be LLC members, whereas these entities cannot be shareholders in S Corporations. Also in contrast to S Corporations, there is no limit on the number of shareholders-members of the LLC.

DISADVANTAGES OF THE LLC

The disadvantages of the LLC are relatively few. However, there are some issues to address. For example, members of an LLC formed in one state may have limited liability in that state but face unlimited liability in another state. Another disadvantage is the fact that because the LLC is a relatively new form of enterprise, little case law exists in regard to LLCs. In some situations, the restrictions placed by statute on the transfer of ownership interests in LLCs may also be a disadvantage.

Partnership | Limited Liability Company | S Corporation

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