Limited liability company

Eduzendium article

The business entity you choose can greatly affect your personal liability. When shareholders or owners of a business are not personally liable for any business debts or obligations, they enjoy "limited liability." The last thing you want to do is create a bsuiness where the negligence of a partner, or even an employee, puts your personal assets at risk. A limited liability company (LLC) is a relatively new business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single member” LLCs, those having only one owner.

A few types of businesses generally cannot be LLCs, such as banks and insurance companies. Who can form an LLC? Although most states permit one-member LLC's , the LLC KIT is designed to be used by two or more members. This is because the one-member LLC has not been fully tested before the IRS and it is uncertain as to how they will ultimately be treated in various situations. By definition, one person cannot be a partnership and therefore you might lose this advantage.

The filing of LLC: An LLC is formed by filing a form, usually called Articles of Organization, with the Secretary of State. The corporation division of most secretary of state offices handles LLCs. Most states require an annual report be filed. The LLC is not a tax paying entity. Profits, losses etc. flow directly through and are reported on the individual members tax returns. The only problem one can have is that, when trying to borrow money from a financial institution to expend the business, it will be hard to receive a loan unless one has excellent credit as an individual or as a company. A LLC does not have an infinite life, it ends with the death of one of the owners or the only owner, if the owner or one of the owners goes bankrupt, or when one decides not to continue keeping the business anymore. With a LLC, the members the company either manage the business affairs of the company themselves or appoint a manager to operate it. The pros of a LLC are: No group of individuals stand between the members and the managers. There is a great deal of flexibility in determining a management structure for the company. The members can adopt a structure best suited to the particular needs of the company. The cons of a LLC are: Each member has rights into the managing the company, therefore disagrement and deadlock could exist in this type of ownership.