The LLC (which stands for Limited Liability Company) has rapidly become one of the most popular entity types for new and small businesses, largely because it is considered to be simpler and more flexible than a corporation. The policies and cost vary from state to state.
An LLC has many benefits that can work for different types of companies. Whether you are a sole proprietor, have a partner, or a multi-member corporation, the LLC is a great choice for small business owners, as it can provide the same limited liability protection as a corporation, without many of the complexities and formalities associated with them.Here are some of the most common advantages for forming an LLC:
The LLC, much like a corporation, provides the LLC owners with limited liability protection. This means that the company assets are typically owned by the LLC and are separate from the personal assets from that of the LLC owner(s), Should there be a lawsuit aimed at the company, whether with or without merit, the LLC is the legal entity that would be sued. The assets of the LLC could be attacked, however that would be separate from the personal assets of the LLC owner(s), which would be protected.
The potential liability of an LLC owner is limited only to whatever that owner has invested in the LLC (such as an initial, investment or any retained earnings). This is very much the same as if you had purchased shares of stock in a corporation. In most cases, the most you can lose is what you paid for the stock, but you typically will not lose more than that, no matter how much the company might potentially lose or for however much the company might be sued.
Unlike corporations, LLCs are much less formal in structure and how it is managed. The structure of the LLC is very much the same as that of a partnership (or a sole proprietorship in the case of a single member LLC), but with the limited liability protection, discussed above. The management of the LLC is typically invested in all of the LLC members, which is the generic term for the LLC owners.
The LLC members or owners are the ultimate authority, and are responsible for all aspects of the LLC. There are no separate positions like there are with a corporation (which requires shareholders, directors, and officers). An LLC member is like all three of those corporate roles in one (although LLC members may certainly have any titles they deem appropriate, and may agree to divide up various responsibilities in whatever way the members see fit); all members have complete authority over the LLC.
LLCs (unlike corporations) are not required to hold annual meetings and keep minutes, nor are they subject to the more stringent record keeping required of corporations. The governing document of the LLC is the operating agreement and it is within this document that the members may lay out all important provisions, such as LLC governance, ownership, member changes (adding, removing, death, and incapacity of members) are stated. The operating agreement is an internal document, and is an agreement amongst the members or owners, which means that it is not recorded with the state.
The LLC ownership is typically expressed in percentages (e.g. Sara and Jim each own 50% of S & J ENTERPRISES LLC) as opposed to the shares of stock that a corporation would have. Another business entity can even be a member of an LLC.
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