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What is an LLC?

The simple definition of a limited liability company (LLC) is that it is a form of business entity that limits the liability of its owners while allowing flexibility in operation and management and passing through its income to its members with no tax at the entity level.

Well, that's a pretty easy definition of an LLC, but it leaves a lot of queations unanswered. So, really, what is a limited liability company?

Basic Features of an LLC

The basic features of a limited liability company are:

The LLC is probably most like a limited partnership, but without the requirement that there be at least one general partner liable for the debts and obligations of the partnership.

An LLC is a statutory creation. That is, unlike general partnerships which developed under common law, an LLC, like a corporation, is created by filing a document (usually called Articles of Organization) with an officer designated by state law. As the LLC is a statutory entity, the laws governing the LLC set up a particular ramework of rules for the operation and management of the LLC. Generally, most of the statutory rules are considered to be fallback provisions which take effect only if the LLC's operating agreement doesn't provide for guidance on a particular point.

The LLC - a Newcomer

The LLC is a relatively new business entity, at least in the United States. Business entities that bear strong similarities to limited liability companies existed in some European countries, but the first modern LLC statute in the United States was adopted by the Wyoming legislature in 1977. At first, the novel entity was slow to gain acceptance. The second state to enact a limited liability company act was Florida in 1982, five years after Wyoming's act. However, in the 1990's the popularity of the LLC snowballed and by 1997, every state and the District of Columbia had passed statutes allowing the formation of limited liability companies.

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LLC Filing Services:

There are many companies that exist to form LLCs for clients. These services typically charge around $100-$500 to do the paperwork for you and make the filing with the various Secretaries of State to form the LLC. We list limited liability company filing services that have been recommended to us by a significant amount of our readership here:

This article was written by , an Illinois 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.