Limited liability company (thing)

In the United States, the limited liability company (LLC) is a relatively new business structure compared to the other business structures (it became popular at the beginning of this century). It is a hybrid between a general partnership and a corporation, and offers the best features of the both. A limited liability company is formed by the consent of its member-owners. The company must file articles of organization to the state in which it operates. The state authorizes the organization of the firm by issuing a charter. A limited liability company is viewed as a legal entity apart from its member-owners.

The advantages:

• There is great amount flexibility regarding the management of the firm.
• There are no corporate formalities that must be preserved, such as member meetings or an election of board of directors.
• The LLC is also preferred for its flexibility in taxation. An LLC has the option to be taxed only once as a partnership. Single taxation should save the firm a lot of money for growth and expansion.
• The members of a LLC enjoy limited liabilities for the firm's debts. If the firm cannot pay its bills for any reason, creditors cannot seize the personal assets of its members. Therefore, this form of organization gives its members greater security.
• There is also no joint liability for torts and breach of trust. A member is not liable for the torts committed by other members unless he or she has directly participated in the cause for action.
• If one of the parties decides to withdraw from the firm or dies, the LLC is still intact as an entity. Therefore, this structure is more stable than a partnership.

The disadvantages:

• The main disadvantage of an LLC is the lack of uniform laws across the states. If an LLC decides to expand to another location in a different state, the firm must review the laws of the state to ensure that the LLC complies with all the rules of the new state of operation.
• Since the LLC is a relatively new invention, some creditors may not be familiar with the business structure and might be less willing to give out loans to the company.
• There is the limitation in that people who would invest as shareholders are thrown by the term "membership", which is what they would have in the LLC rather than a "share".

Basically, there are few, if any, disadvantages to an LLC. The current disadvantages will be phased out as people and the business world become more familiar with the LLC.

Kurt: Thank you very much for the insights and good points.

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