Limited liability company

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Limited liability company (LLC)

A company that has characteristics of both a corporation and partnership. Like a corporation, it offers owners limited liability and like a partnership, taxation is at individual owner level rather than at corporate level.

Limited Liability Company

In the United States, a company with limited liability amongst its owners, that is, one in which a partner is not liable for more than his/her/its investment in case of insolvency. In other words, a co-owner of a limited company would lose the value of his/her investment if the company declares bankruptcy, but would not be held liable for other outstanding debts. A limited liability company is one of the most common corporate structures in the United States. It is designated by the letters "LLC" after its name.

A limited liability company is taxed as if it were a partnership, but has the ability to raise capital by acquiring new partners as if it were a corporation. However, because a limited liability company is not publicly-traded, it may have more difficulty raising capital than corporations. A limited liability company is designed to give at least some employees a share in the company's equity, while protecting them from potential losses. See also: Limited company.

Limited liability company.

Organizing a business enterprise as a limited liability company (LLC) under the laws of the state where it operates protects its owners or shareholders from personal responsibility for company debts that exceed the amount those owners or shareholders have invested.

In addition, an LLC's taxable income is divided proportionally among the owners, who pay tax on their share of the income at their individual rates. The LLC itself owes no income tax.

The limited liability protection is similar to what limited partners in a partnership or investors in a traditional, or C, corporation enjoy.

The tax treatment is similar to that of a partnership or S corporation, another form of organization that's available for businesses with fewer than 75 employees. However, only some states allow businesses to use LLC incorporation.

limited liability company

A cross between a corporation and a partnership, the limited liability company must be created by documents filed in the same place as corporations.This type of organization enjoys much of the informality of a partnership, the tax benefits of a partnership with all income taxed at the shareholder level but not at the company level (see double taxation), and the limited liability granted to corporate shareholders, who cannot be held personally liable for a corporate debt or transgressions. Be aware, however, that members of a limited liability company may well be safe from contractual claims against the company, but most claims for negligence or wrongdoing will include some theory of personal liability against the members also.

Example: A claim against a limited liability company may be for its negligence in allowing mud and water to remain on the floor, leading to a customer slipping and falling and sustaining back injuries. The plaintiff in such a case may claim the individual members were also personal- ly liable for their failure to develop policies and procedures to keep the floors clean or because they were also the employees and had personal responsibility to mop the floors.

References in periodicals archive ?
The treatment of the distribution to the LLC and any member will depend on the type of distribution made.
The LLC combines the best features of a partnership and an S corporation: the partnership's pass-through tax benefits and flexibility with the corporation's limited liability of management and owners.
When Governor Tucker signed The Small Business Entity Tax Pass Through Act of 1993, Arkansas joined 18 other states in the limited liability/company ("LLC") tidal wave that was sweeping over the American business landscape.
Additionally, as a Federally taxable partnership, LLCs do not worry about the section 351 tax-free incorporation requirements and can take advantage of section 754 special basis adjustments for external sales of interest.
Although technical issues clearly remain, federal tax compliance for LLCs has proceeded relatively smoothly under the IRS's efforts.
"The one advantage the LLCs have is that there is no longer any personal liability whatsoever," explained Anderson.
* If one or more individuals hold their LLC membership through single-member LLCs, their single-member LLCs transfer their memberships to themselves as individuals
Critique: Comprehensive, fully up to date, expertly organized and presented, "Nolo's Quick LLC: All You Need to Know About Limited Liability Companies" is an impressively 'user friendly' instructional guide and manual, especially for the novice entrepreneur starting up an LLC operation of their own.
Most states permit both member-managed LLCs and manager-managed LLCs, with member-managed as the default rule and an election required to be manager-managed.
Thus, the members of LLCs that are taxable as S corporations owe these taxes only on their compensation from their LLCs (their salaries and bonuses) and not on their shares of LLC net income.
Illinois has attempted to address this issue by charging a higher initial filing fee for a Series LLC, as compared to regular LLCs, but then charging a smaller additional fee for each series filing.
Most companies that convert a corporation to an LLC want the LLC to retain the historic employer identification number (EIN) of the corporation and may assume that the EIN carries over automatically to the LLC.