What is a Limited Liability Company and How to Set It Up
Another popular is the structure that has become popular with entrepreneurs is the limited liability company. A Limited Liability Company, LLC brings together some of the best features of the Corporation and the partnership.
A limited liability company allows the business owners 2 protect themselves from personal liability while allowing the kind of tax benefits that the partnership enjoys. A limited liability company is not subject to double taxation as corporations are and earnings and losses are passed through to the owners which are included on the personal tax returns. All this is pretty similar to an S corporation except that there are a few differences. A limited liability company, LLC, has no limitations on the number of shareholders unlike an S corporation which has a limit of 100 shareholders. Also, any member or owner of the LLC is allowed to fully participate in the business operations as opposed to a limited partnership where only the Gen. partners are allowed to run the operations and limited partners are only the silent investors.
In order to set up a limited liability corporation, LLC, you must file articles of organization with the secretary of state in the state where you intend to operate your business. Some states may also require you to file an operating agreement which is similar to a partnership agreement. Same as a partnership, a limited liability company does not have perpetual life. Some state regulations require that the company be dissolved after 30 or 40 years. Also just like a partnership, the company dissolves when a member dies, quits or retires.
In order to operate a limited liability company in several states you need to understand how one state treats the LLC structure created in another State. It is a good idea to use professional help from an accountant and an attorney when dealing with various rules and regulations governing the LLC’s.
Another recent development in the legal business structure is that of limited liability partnership, LLP. In case of a limited liability partnership, the personal liability of each partner is limited usually to the malpractice and decisions made by themselves and does not extend to those of other partners. This legal business structure works well for professionals were involved in practice together such as physicians, lawyers, artists etc.