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.

Taxation

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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S Corporation Structure

An S corporation is a tax designation that a business must apply for with the Internal Revenue Service. Used for small businesses, the benefit of the S corporate designation is that it allows the business to be taxed as a partnership. To apply for S corporate status, the business must submit a completed Form 2553 within 2 months and 15 days after the beginning of the first tax year that it wants to be treated as an S corporation.

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