A limited liability company, or LLC, is a legal business entity that is designed to combine a variety of aspects of both partnerships and corporations in a way that is beneficial to the business owner(s). For many people starting a business, the LLC is the ideal option because it can provide personal legal protection, certain tax advantages, and much more. Learning more about what limited liability companies are is a great way to determine if it is the right option for your business.
What is Different from Other Business Types?
The first thing to learn about limited liability companies is what sets them apart from other business types. There are several options to consider. The following are some of the most popular options and key things that set them apart from an LLC:
- Limited Partnership (LPs) – Limited partnerships have two types of owners, the general partner, and the limited partner. General partners handle all of the management and take on the risk. The limited partners are essentially investors as they contribute funds (or other value) but don’t manage the business or take on any personal risk.
- Corporation – Corporations are entirely separate legal entities. Shares are used to identify ownership, and a corporation will have a Board of Directors, which LLC’s don’t require.
- Partnerships – Partnerships are essentially an agreement on how the business will run between two or more people, but doesn’t set up a separate legal entity. The partners are still liable for the obligations of the business, which is different from an LLC.
What Protection Does it Provide?
Limited liability companies offer a variety of types of protection for the business owners. The main types of protection it offers is the limiting of different liabilities. Specifically, the owners of an LLC are not personally liable for the debts of the business. Each owner is also protected from liability for actions taken by co-owners, employees, or even their own actions when related to the LLC. Finally, the LLC is actually protected from liability for any personal debts taken on by members of the business. All of this helps to build and maintain a more stable financial environment for both the business and the members.
How is it structured?
Limited liability companies have members (the owners) and are either run by the members, or run by a manager or managers, which are then called manager-managed LLCs. When an LLC is owned by one person, we call that a single-member LLC. LLCs can be taxed as subchapter S corporations, or partnerships, or they can be taxed as sole proprietorships if they are single-member LLCs. The advantage of an LLC over a subchapter S corporation, is that an LLC can make distributions of profit in any manner that the members agree, while a corporation must distribute the profit in accordance with the ownership interests of each shareholder. The rules governing the LLC are established by a Company Agreement, which is similar to the bylaws of a corporation. Also, while the members of an LLC are not required to meet periodically, we recommend an annual meeting in order to preserve the formalities of the entity.
Get the Help You Need
While starting an LLC is not terribly difficult, it is important that it is done properly to ensure everything is ready not only for today, but long into the future. Having an experienced attorney assist with the creation of an LLC is a great way to avoid problems. Contact Fraser, Wilson & Bryan, P.C. to go over your options and see whether an LLC might be right for you.
