LLC Characteristics

By Holly Cameron

A limited liability company, or LLC, combines characteristics from both traditional corporations and partnerships. All states in the United States have their own laws regarding incorporation of LLCs, and it is therefore important to check the relevant statutes for your chosen state of incorporation. Despite this, there are a number of characteristics that are common to LLCs in most states.

Limited Liability

As the name suggests, one of the key characteristics of an LLC is that the liability of the members is, in general, limited to the extent of their personal investment in the business. This means that the members cannot be personally sued for the debts of the company over and above the amount of their individual investment. There are exceptions, however, when a member may be deemed to be personally liable -- for example, if he has guaranteed a loan in a personal capacity.


The LLC itself as a legal entity is not taxed in most states. Members pay taxes on their individual profits. In practice, this means that members may, if they choose, transfer some of the profits back into the business, thus reducing their tax bill. In certain jurisdictions, the members of an LLC can elect to choose their business entity classification for tax purposes. An LLC must be structured carefully in order to ensure tax advantages, so it's a good idea to get advice from professionals before you start your LLC.

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Operational Flexibility

An LLC may have an unlimited number of members, and all members are allowed to participate in the management of the business. Anyone can be a member of an LLC, including individuals, corporations and even other LLCs in certain circumstances. In many states, LLCs can be incorporated with just one member, making the business entity available to small businesses and sole proprietors. Members are permitted to assign their interests to others, with the only obligation being to notify the relevant state department. Unless the LLC Articles of Organization state otherwise, all members are deemed to be managers of the company.

Reduced Administration

The traditional form of corporation requires a number of administrative formalities to be carried out on a regular basis by the members. These requirements are reduced for LLCs in many states. For example, annual general meetings are usually not required. Most LLCs appoint a registered agent for the serving of process, meaning that person or entity will receive any type of legal communication regarding the LLC. An LLC must maintain a registered office in the state of incorporation, but this does not need to be a place of business of the company itself.

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All states have either enacted the Uniform Limited Liability Company Act or a law with similar provisions authorizing the formation of limited liability companies. According to these state laws, an LLC can be established for any lawful business purpose. Because of the flexibility of this type of business structure, an LLC is suitable for virtually any type of business enterprise. An LLC is established through the filing of articles of organization with state government. An LLC provides two significant benefits to the owner. First, an LLC provides the same type of liability protection normally associated with a corporation. An owner is not personally liable for the activities of the business organized as an LLC. Second, unlike a corporation, in which an owner faces the prospect of double taxation, an LLC offers a pass-through tax mechanism. With an LLC, an owner faces only tax liability one time.

LLC Explained

A limited liability company (LLC) is a type of company that exhibits characteristics of both partnerships and corporations. Like a corporation, an LLC has a legal existence separate from that of its owners, who are called "members." Like a partnership, though, it avoids the double taxation problem that frequently accompanies corporations. Limited liability, flexibility in tax treatment and simplicity of operation have made the LLC a popular choice for small business start-ups.

What Are the Advantages and Disadvantages Between Being a Sole Proprietorship & Incorporated?

Choice of entity is one of the first and most important decisions faced by someone starting a small business. Two of the entity forms available to the small business person are sole proprietorship -- operating the business as an individual, perhaps with an assumed business name -- and corporation, which is a separate entity from its owner. Sole proprietorships and other business entities differ in their formation, taxation and liabilities, and offer different advantages and disadvantages to small business owners.

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