What is an LLC?

By | May 13, 2008

A limited liability company (LLC) is a form of business organization set up to offer liability protection to its members. When difficulties arise, LLC members may lose their investments in the company, but not their personal assets. LLCs are often better than a limited partnership, because in a limited partnership, one partner is personally liable for the partnership’s debts. An LLC does not make such a requirement of any one member.

States with statutes allowing LLPs (limited liability partnerships) are often related in statute to LLCs. There are certain rules to follow when forming an LLC (some states may require additional guidelines), some of which are:

  1. The LLC must be formed by two or more members;
  2. The duration of the LLC must not exceed 30 years;
  3. LLC members’ shares cannot be freely transferable;
  4. Members must elect the main mangers of the LLC; and
  5. There are no limits on who may become a member of the LLC.

Federal tax law treats an LLC as an association, which must bear a resemblance to a corporation in order to be taxed as a corporation. Even though the formation of an limited liability company sounds complicated, with the right factors present, and in alliance with state law, this is a very intelligent way to set up an enterprise. Starting an LLC can all be done by simply following the formats prescribed, making sure all aspects are adhered to, and requirements are in compliance with governing regulations.

One thought on “What is an LLC?

  1. David Staub


    “1. The LLC must be formed by two or more members;”

    –No state requires more than one member. In 1993, perhaps, but not in recent years.

    “2. The duration of the LLC must not exceed 30 years;”
    “3. LLC members’ shares cannot be freely transferable;”

    –This was never true. It did effect whether the LLC would be treated as a partnership for federal tax purposes before the ‘check the box’ regulations were adopted in 1996, but was not a requirement for the LLC itself.

    “4. Members must elect the main mangers of the LLC”

    –Besides the obvious misspelling, there is no requirement that an LLC even have managers. The members in many cases manage the LLC directly.

    More information can be found at http://www.limitedliabilitycompanycenter.com

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