Limited liability company - Definition and Overview

A Limited liability company (denoted by L.L.C. or LLC) is a type of legal entity which has only relatively recently been made possible to establish in the United States and many other, mainly anglophone, countries. An LLC is similar to a corporation and a limited partnership.

The concept of an LLC was apparently modelled after the German GmbH (Gesellschaft mit beschränkter Haftung; LLC is a broad translation of the term). These have existed in German-speaking countries for some time--in Germany itself since 1892. The concept was adopted by many English-speaking countries because LLCs have some advantages over corporations. It is sometimes said that an LLC is "kind of a 'light' version of an Inc. or Ltd." This is a generalisation, however, and may be misleading or wrong in some cases.

Basically, an LLC allows for the flexibility of a partnership structure within the framework of limited liability, such as that granted to corporations. Another advantage of an LLC over a limited partnership is that the formalities required for creating and registering LLCs are much simpler than the requirements most states place on forming corporations; often they are no more complex than creating a corporate structure.

LLC v. LLP

A limited liability company (LLC) differs from a limited liability partnership (LLP) in that the LLP has the organizational flexibility of a partnership and is taxed as such, and in that all partners of the LLP remain liable for the other partners' debts and obligations.

LLC vs. Inc. & Ltd.

Advantages of an LLC

• Simpler to set up
• No requirement of an annual general meeting for shareholders
• No double taxation
• Limited liability

(LLCs can sometimes be held liable, usually in the cases of personal injury, fraud, or negligence by the owner.)

• Profits taxed personally
• Can be set up with just one natural person involved

Disadvantages of an LLC

• It may be more difficult to raise capital for an LLC, as investors may be wary of submitting funds to an entity whose liability is limited
• The possible lack of any operating agreement requirement can cause problems

External links

• LLC History (http://www.llc-reporter.com/16.htm)
• Nolo site on LLCs (http://www.nolo.com/lawcenter/ency/index.cfm/catID/19B45DBF-E85F-4A3D-950E3E07E32851A7#BAAE1B67-F54A-41B4-91943A51F56C3F79)