LLC stands for Limited Liability Company. Because it is not a partnership or a
corporation, the owners of an LLC are not partners or shareholders, they are
"members." Such companies are frequently labeled Limited Liability Corporations,
but corporation is inaccurate and company is the proper term.
An LLC actually combines aspects of partnerships and corporations, so an LLC is
less formal and more flexible than a typical corporation, yet offers protection
as well as certain advantages that are much the same. For example, members
cannot be found personally liable for company debts. Their assets are separate
from the assets of the LLC so they cannot be seized. One of the advantages of an
LLC is that taxation is based on the partnership model. Flow-through taxation is
advantageous since members are only required to pay taxes on their earnings once
instead of paying both corporate and individual taxes.
A Limited Liability Company, unlike a corporation, can be made up of as many
members as the company wishes to have and it does not require bylaws, meetings,
or the recording of minutes. While many states do not demand an operating
agreement, it is a good idea to have one in place of the usual bylaws or
In corporations, shareholders may transfer stock or their interest in ownership,
while members of an LLC cannot. Transferring one's interest in the company may
be dependent on the approval of other members. In addition, if a member of an
LLC passes away, decides to leave, or goes bankrupt, the LLC is usually
dissolved, while corporations are not limited by such restrictions.
To set up an LLC, Articles of Organization must be filed according to state
specific guidelines, and any and all fees must be paid. Articles of Organization
are usually filed with the Secretary of State. You may wish to hire an attorney
to prepare and file the paperwork, or you can do it on your own. In fact, there
is reasonably priced software available that will prepare the necessary forms
according to your state's regulations, which you can then file yourself.