Limited Liability Corporations

A limited liability company, often shortened to LLC, is a hybridized legal business structure grown on some of the characteristics of a corporation with elements of a partnership added in.

Limited Liability

Limited liability essentially means that the business owners, however many there are, cannot be held liable for the business’ debts and responsibilities should the business fail. A sole proprietor or partnership, on the other hand, is a business structure in which owners are directly responsible for any debts should the business not work out; their personal liability can result in loss of house, car and other valuable items that lenders will take in order to effect repayment of loans.

Deciding on a Limited Liability Business Structure

When a business owner decides a limited liability structure will best suit his or her business needs, there are a number of legal forms that must be filled out and filed with certain offices of state government in which the business will operate. These forms are similar to the legal documents for incorporating a business. Most state government websites have extensive information about their requirements for limited liability corporations. Legal documents can be prepared either by an attorney or by the business owner.

Some states will require the business to also prepare a simple document often called an operating agreement. This document is designed to outline the general business structure, which can be ambiguous with some limited liability companies.

Advantages of a Limited Liability Business

For many businesses a limited liability structure simply makes sense. According to most experts, the business is much simpler to manage than a corporate structure, yet at the same time a limited liability corporation can afford some of the same protections from personal ruination that a corporation offers its joint owners.

Limited Liabilities and Taxes

LLCs share tax characteristics similar to a sole proprietorship or partnership. When a LLC has a single owner the government views the business as a sole proprietorship and when it has multiple owners, as a partnership. LLCs, sole proprietorships and partnerships are commonly called “pass-through entities” meaning that the profits from the business literally pass through to the owners who are in turn personally responsible for reporting this income as part of their individual income taxes.

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