A limited liability company (LLC) has many advantages as a form of business entity:
- Pass-through taxation - under the default tax classification, profits taxed at the member level, not at the LLC level (i.e., no double taxation).
- Limited liability - the owners of the LLC, called "members," are protected from liability for acts and debts of the LLC.
- With "check-the-box" taxation, an LLC can elect to be taxed as a sole proprietor, partnership, S-corp or corporation, providing much flexibility.
- Can be set up with just one natural person involved or, in some states, one owner which may be an entity itself.
- No requirement of an annual general meeting for shareholders (in some states, such as Tennessee and Minnesota, this statement is not correct).
- No loss of power to a board of directors (although an operating agreement may provide for centralization of management power in a board or similar body).
- LLCs are enduring legal business entities, with lives that extend beyond the illness or even death of their owners, thus avoiding problematic business termination or sole proprietor death.
- Much less administrative paperwork and recordkeeping.
- Membership interests of LLCs can be assigned, and the economic benefits of those interests can be separated and assigned, providing the assignee with the economic benefits of distributions of profits/losses (like a partnership), without transferring the title to the membership interest (e.g., see Virginia and Delaware LLC Acts).
This article was written by David K. Staub, a Chicago business attorney and frequent writer and speaker on limited liability companies. The site is for educational and informational purposes only and does not constitute legal advice. The information which is presented here is intended to make limited liability companies easier to understand, but weighing the tax, liability and operations issues requires a thorough understanding of the applicable law and cases. Anyone contemplating forming a limited liability company is urged to obtain proper legal advice.