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).