Limited liability company - wikipedia Limited liability company `` LLC '' redirects here. For other uses, see LLC ( disambiguation ). This article is about the United States - specific business entity form. For limited liability companies, see Limited company. For a general discussion of entities with limited liability, see Private limited company. This article includes a list of references, but its sources remain unclear because it has insufficient inline citations. Please help to improve this article by introducing more precise citations. ( May 2009 ) This article is part of a series on Corporate law By jurisdiction Anguilla Australia BVI Canada Cayman Islands India South Africa United States Vietnam European Union France Germany United Kingdom General corporate forms Company Conglomerate Cooperative Corporation Holding company Joint - stock Partnership General Limited Limited liability Private limited Sole proprietorship Corporate forms by jurisdiction European Union Societas ( SE ) Societas cooperativa ( SCE ) Societas privata ( SPE ) Societas unius personae ( SUP ) Economic interest grouping ( EEIG ) UK / Ireland / Commonwealth Charitable incorporated organisation ( CIO ) Community interest company ( CIC ) Industrial and provident society ( IPS ) Limited company ( Ltd. ) by guarantee by shares proprietary public Unlimited company United States Benefit corporation C corporation Limited liability company ( LLC ) Low - profit LLC Series LLC Limited liability limited partnership ( LLLP ) S corporation Delaware corporation / statutory trust Massachusetts business trust Nevada corporation Others Aktiebolag ( AB ) Aktiengesellschaft ( AG ) Ansvarlig selskap ( ANS ) Aktieselskab ( A / S ) Aksjeselskap ( AS ) Gesellschaft mit beschränkter Haftung ( GmbH ) Kabushiki gaisha ( K.K. ) Naamloze vennootschap ( N.V. ) Osakeyhtiö ( Oy ) S.A. Société à responsabilité limitée ( SARL ) more... Doctrines Business judgment rule Corporate governance De facto and estoppel corporations Internal affairs doctrine Limited liability Piercing the corporate veil Rochdale Principles Ultra vires Related areas Civil procedure Contract Corporate registers Company portal Law portal A limited liability company ( LLC ) is the United States - specific form of a private limited company. It is a business structure that combines the pass - through taxation of a partnership or sole proprietorship with the limited liability of a corporation. An LLC is not a corporation in itself ; it is a legal form of a company that provides limited liability to its owners in many jurisdictions. LLCs are well - known for the flexibility that they provide to business owners ; depending on the situation, an LLC may elect to use corporate tax rules instead of being treated as a partnership, and, under certain circumstances, LLCs may be organized as not - for - profit. In certain U.S. states ( for example, Texas ), businesses that provide professional services requiring a state professional license, such as legal or medical services, may not be allowed to form an LLC but may be required to form a similar entity called a professional limited liability company ( PLLC ). Contents 1 Overview 2 Flexibility and default rules 3 Income tax 4 Advantages 5 Disadvantages 6 Variations 7 See also 8 References Overview A limited liability company ( LLC ) is a hybrid legal entity having certain characteristics of both a corporation and a partnership or sole proprietorship ( depending on how many owners there are ). An LLC is a type of unincorporated association distinct from a corporation. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass - through income taxation. It is often more flexible than a corporation, and it is well - suited for companies with a single owner. Although LLCs and corporations both possess some analogous features, the basic terminology commonly associated with each type of legal entity, at least within the United States, is sometimes different. When an LLC is formed, it is said to be `` organized '', not `` incorporated '' or `` chartered '', and its founding document is likewise known as its `` articles of organization '', instead of its `` articles of incorporation '' or its `` corporate charter ''. Internal operations of an LLC are further governed by its `` operating agreement '', rather than its `` bylaws ''. The owner of beneficial rights in an LLC is known as a `` member, '' rather than a `` shareholder ''. Additionally, ownership in an LLC is represented by a `` membership interest '' or an `` LLC interest '' ( sometimes measured in `` membership units '' or just `` units '' and at other times simply stated only as percentages ), rather than represented by `` shares of stock '' or just `` shares '' ( with ownership measured by the number of shares held by each shareholder ). Similarly, when issued in physical rather than electronic form, a document evidencing ownership rights in an LLC is called a `` membership certificate '' rather than a `` stock certificate ''. In the absence of express statutory guidance, most American courts have held that LLC members are subject to the same common law alter ego piercing theories as corporate shareholders. However, it is more difficult to pierce the LLC veil because LLCs do not have many formalities to maintain. As long as the LLC and the members do not commingle funds, it is difficult to pierce the LLC veil. Membership interests in LLCs and partnership interests are also afforded a significant level of protection through the charging order mechanism. The charging order limits the creditor of a debtor - partner or a debtor - member to the debtor 's share of distributions, without conferring on the creditor any voting or management rights. Limited liability company members may, in certain circumstances, also incur a personal liability in cases where distributions to members render the LLC insolvent. Flexibility and default rules LLCs are subject to fewer regulations than traditional corporations, and thus may allow members to create a more flexible management structure than is possible with other corporate forms. As long as it remains within the confines of state law, the operating agreement is responsible for the flexibility the members of the LLC have in deciding how their LLC will be governed. State statutes typically provide automatic or `` default '' rules for how an LLC will be governed unless the operating agreement provides otherwise. The limited liability company ( `` LLC '' ) has grown to become one of the most prevalent business forms in the United States. However, the use of a single member LLC may do little to protect the assets of the member, as compared to operating as an unincorporated entity. Effective August 1, 2013, the Delaware Limited Liability Company Act provides that the managers and controlling members of a limited liability company owe fiduciary duties of care and loyalty to the limited liability company and its members. Under the amendment ( prompted by the Delaware Supreme Court 's decision in Gatz Properties, LLC v. Auriga Capital Corp ), parties to an LLC remain free to expand, restrict, or eliminate fiduciary duties in their LLC agreements ( subject to the implied covenant of good faith and fair dealing ). Under 6 Del. C. Section 18 - 101 ( 7 ), a Delaware LLC operating agreement can be written, oral or implied. It sets forth member capital contributions, ownership percentages, and management structure. Like a prenuptial agreement, an operating agreement can avoid future disputes between members by addressing buy - out rights, valuation formulas, and transfer restrictions. The written LLC operating agreement should be signed by all of its members. Income tax For U.S. federal income tax purposes, an LLC is treated by default as a pass - through entity. If there is only one member in the company, the LLC is treated as a `` disregarded entity '' for tax purposes, and an individual owner would report the LLC 's income or loss on Schedule C of his or her individual tax return. Thus, income from the LLC is taxed at the individual tax rates. The default tax status for LLCs with multiple members is as a partnership, which is required to report income and loss on IRS Form 1065. Under partnership tax treatment, each member of the LLC, as is the case for all partners of a partnership, annually receives a Form K - 1 reporting the member 's distributive share of the LLC 's income or loss that is then reported on the member 's individual income tax return. On the other hand, income from corporations is taxed twice, once at the corporate entity level and again when distributed to shareholders, thus more tax savings often result if a business formed as an LLC rather than a corporation. An LLC with either single or multiple members may elect to be taxed as a corporation through the filing of IRS Form 8832. After electing corporate tax status, an LLC may further elect to be treated as a regular C corporation ( taxation of the entity 's income prior to any dividends or distributions to the members and then taxation of the dividends or distributions once received as income by the members ) or as an S corporation ( entity level income and loss passes through to the members ). Some commentators have recommended an LLC taxed as a S - corporation as the best possible small business structure. It combines the simplicity and flexibility of an LLC with the tax benefits of an S - corporation ( self - employment tax savings ). Advantages Choice of tax regime. An LLC can elect to be taxed as a sole proprietor, partnership, S corporation or C corporation ( as long as they would otherwise qualify for such tax treatment ), providing for a great deal of flexibility. A limited liability company with multiple members that elects to be taxed as partnership may specially allocate the members ' distributive share of income, gain, loss, deduction, or credit via the company operating agreement on a basis other than the ownership percentage of each member so long as the rules contained in Treasury Regulation ( 26 CFR ) 1.704 - 1 are met. S corporations may not specially allocate profits, losses and other tax items under US tax law. The owners of the LLC, called members, are protected from some or all liability for acts and debts of the LLC, depending on state shield laws. In the United States, an S corporation has a limited number of stockholders, and all of them must be U.S. citizens ; an LLC may have an unlimited number of members, and there is no citizenship restriction. Much less administrative paperwork and record - keeping than a corporation. Pass - through taxation ( i.e., no double taxation ), unless the LLC elects to be taxed as a C corporation. Using default tax classification, profits are taxed personally at the member level, not at the LLC level. LLCs in most states are treated as entities separate from their members. However, in some jurisdictions such as Connecticut, case law has determined that owners were not required to plead facts sufficient to pierce the corporate veil and LLC members can be personally liable for operation of the LLC ( see, for example, the case of Sturm v. Harb Development LLCs in some states can be set up with just one natural person involved. Less risk of being `` stolen '' by fire - sale acquisitions ( more protection against `` hungry '' investors ). For real estate companies, each separate property can be owned by its own individual LLC, thereby shielding not only the owners but their other properties from cross-liability. Disadvantages Although there is no statutory requirement for an operating agreement in most jurisdictions, members of a multiple member LLC who operate without one may encounter problems. Unlike state laws regarding stock corporations, which are very well developed and provide for a variety of governance and protective provisions for the corporation and its shareholders, most states do not dictate detailed governance and protective provisions for the members of a limited liability company. Thus, in the absence of such statutory provisions, the members of an LLC must establish governance and protective provisions pursuant to an operating agreement or similar governing document. It may be more difficult to raise financial capital for an LLC as investors may be more comfortable investing funds in the better - understood corporate form with a view toward an eventual IPO. One possible solution may be to form a new corporation and merge into it, dissolving the LLC and converting into a corporation. Many jurisdictions -- including Alabama, California, Kentucky, New York, Pennsylvania, Tennessee, and Texas -- levy a franchise tax or capital values tax on LLCs. In essence, this franchise or business privilege tax is the fee the LLC pays the state for the benefit of limited liability. The franchise tax can be an amount based on revenue, an amount based on profits, or an amount based on the number of owners or the amount of capital employed in the state, or some combination of those factors, or simply a flat fee, as in Delaware. Effective in Texas for 2007 the franchise tax is replaced with the Texas Business Margin Tax. This is paid as : tax payable = revenues minus some expenses with an apportionment factor. In most states, however, the fee is nominal and only a handful charge a tax comparable to the tax imposed on corporations. In California, both foreign and domestic LLCs, corporations, and trusts, whether for - profit or non-profit -- unless the entity is tax exempt -- must at least pay a minimum income tax of $800 per year to the Franchise Tax Board ; and no foreign LLC, corporation or trust may conduct business in California unless it is duly registered with the California Secretary of State. Renewal fees may also be higher. Maryland, for example, charges a stock or nonstock corporation $120 for the initial charter, and $100 for an LLC. The fee for filing the annual report the following year is $300 for stock - corporations and LLCs. The fee is zero for non-stock corporations. In addition, certain states, such as New York, impose a publication requirement upon formation of the LLC which requires that the members of the LLC publish a notice in newspapers in the geographic region that the LLC will be located that it is being formed. For LLCs located in major metropolitan areas ( e.g., New York City ), the cost of publication can be significant. The management structure of an LLC may not be clearly stated. Unlike corporations, they are not required to have a board of directors or officers. ( This could also be seen as an advantage to some. ) Taxing jurisdictions outside the US are likely to treat a US LLC as a corporation, regardless of its treatment for US tax purposes -- for example a US LLC doing business outside the US or as a resident of a foreign jurisdiction. This is very likely where the country ( such as Canada ) does not recognize LLCs as an authorized form of business entity in that country. The principals of LLCs use many different titles -- e.g., member, manager, managing member, managing director, chief executive officer, president, and partner. As such, it can be difficult to determine who actually has the authority to enter into a contract on the LLC 's behalf. Variations A Professional Limited Liability Company ( PLLC, P.L.L.C., or P.L. ) is a limited liability company organized for the purpose of providing professional services. Usually, professions where the state requires a license to provide services, such as a doctor, chiropractor, lawyer, accountant, architect, landscape architect, or engineer, require the formation of a PLLC. However, some states, such as California, do not permit LLCs to engage in the practice of a licensed profession. Exact requirements of PLLCs vary from state to state. Typically, a PLLC 's members must all be professionals practicing the same profession. In addition, the limitation of personal liability of members does not extend to professional malpractice claims. A Series LLC is a special form of a Limited liability company that allows a single LLC to segregate its assets into separate series. For example, a series LLC that purchases separate pieces of real estate may put each in a separate series so if the lender forecloses on one piece of property, the others are not affected. An L3C is a for - profit, social enterprise venture that has a stated goal of performing a socially beneficial purpose, not maximizing income. It is a hybrid structure that combines the legal and tax flexibility of a traditional LLC, the social benefits of a nonprofit organization, and the branding and market positioning advantages of a social enterprise. An Anonymous Limited Liability Company is a LLC for which ownership information is not made publicly available by the state. This is typically accomplished by using a third - party to act as the organizer and registered agent of the LLC. See also Besloten vennootschap met beperkte aansprakelijkheid, a Belgian ( bvba ) and Dutch ( bv ) private limited company Société à responsabilité limitée, the equivalent in French speaking countries Incorporation ( business ) Limited Liability Partnership ( LLP ) List of company registers Types of business entities Unlimited company Wholly Foreign - Owned Enterprise References Jump up ^ Schwindt, Kari ( 1996 ). `` Limited Liability Companies : Issues in Member Liability ''. UCLE Law Review. 44 : 1541. Retrieved 7 September 2017. Jump up ^ `` Limited liability company ( LLC ) ''. Wex. Cornell Law School. Retrieved 7 September 2017. Jump up ^ https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc. Missing or empty title = ( help ) Jump up ^ McCray, Richard A. ; Thomas, Ward L. `` Limited Liability Companies as Exempt Organizations '' ( PDF ). IRS. Retrieved 7 September 2017. ^ Jump up to : Akalp, Neil ( 10 August 2016 ). `` Should You Structure Your Accounting Firm as an LLC, PLLC or PC ? ''. Accounting Today. SourceMedia. Retrieved 7 September 2017. Jump up ^ Larson, Aaron ( 12 July 2016 ). `` What is a Limited Liability Company ( LLC ) ''. ExpertLaw. Retrieved 7 September 2017. Jump up ^ Bischoff, Bill ( 1 May 2017 ). `` The advantages of owning real estate in a single - member LLC ''. MarketWatch, Inc. Retrieved 7 September 2017. Jump up ^ Johnston, Kevin. `` What Is the Difference Between a Shareholder Vs. a LLC Member ? ''. Hearst Newspapers, LLC. Houston Chronicle. Retrieved 7 September 2017. Jump up ^ Friedman, Scott E. ( 1996 ). Forming Your Own Limilted Liability Company. Dearborn Trade Publishing. p. 60. ISBN 9780936894935. Retrieved 7 September 2017. Jump up ^ Macey, Jonathan R. ( 27 March 2014 ). `` The Three Justifications for Piercing the Corporate Veil ''. The Three Justifications for Piercing the Corporate Veil. Retrieved 7 September 2017. Jump up ^ Klein, Shaun M. ( 1996 ). `` Piercing the Veil of the Limited Liability Company, from Sure Bet to Long Shot : Gallinger v. North Star Hospital Mutual Assurance, Ltd ''. Journal of Corporate Law. 22 : 131. Retrieved 7 September 2017. Jump up ^ Vandervoort, Jeffrey K. ( 2004 ). `` Piercing the Veil of Limited Liability Companies : The Need for a Better Standard ''. DePaul Business and Commercial Law Journal. 3 : 51. Retrieved 7 September 2017. Jump up ^ Adkisson, Jay ( 30 April 2013 ). `` The Misunderstood Charging Order ''. Forbes. Retrieved 7 September 2017. Jump up ^ See, e.g., `` Delaware Code, Title 6, Chapter 18, Limited Liability Company Act ''. State of Delaware. Retrieved 7 September 2017. Jump up ^ `` Pros and Cons of a Limited Liability Company ( LLC ) ''. AllBusiness.com. Retrieved 7 September 2017. Jump up ^ Miller, Shari P. `` Single Member LLC Vs. Sole Proprietorship Liability ''. Houston Chronicle. Hearst Newspapers, LLC. Retrieved 7 September 2017. Jump up ^ `` Gatz Properties, LLC v. Auriga Capital Corp., 59 A. 3d 1206 ( 2012 ) ''. Google Scholar. Google. Retrieved 7 September 2017. Jump up ^ Falby, Bruce E. ( 22 August 2013 ). `` Delaware amends its LLC Act : managers and controllers owe fiduciary duties unless LLC agreement provides otherwise ''. DLA Piper. Retrieved 7 September 2017. Jump up ^ Bainbridge, Stephen ( 27 September 2014 ). `` Did n't sign your LLC operating agreement ? Think that 'll get you off ? Think again ''. ProfessorBainbridge.com. Retrieved 7 September 2017. Jump up ^ `` Instruction SS - 4 ( Rev. January 2011 ) '' ( PDF ). Retrieved 2012 - 01 - 04. Jump up ^ `` LLC Filing as a Corporation or Partnership ''. IRS. Internal Revenue Service. Retrieved 7 September 2017. Jump up ^ Akalp, Nellie ( 9 February 2012 ). `` How to Structure Your Startup to Avoid Double Taxation ''. Mashable. Retrieved 7 September 2017. Jump up ^ `` IRS Form 8832 ( Rev. January 2011 ) '' ( PDF ). Retrieved 7 September 2017. Jump up ^ `` Tax Advantages of Corporations - Updated for Tax Year 2016 ''. TurboTax. Retrieved 7 September 2017. Jump up ^ `` Sturm v. Harb Development, 298 Conn. 124, 2 A. 3d 859 ( 2010 ) ''. Google Scholar. Google. Retrieved 7 September 2017. Jump up ^ `` Six Benefits of Limited Liability Companies ''. Cornerstone Law Firm. Cornerstone Law Firm, LLC. Retrieved 23 October 2017. Jump up ^ For example, HMRC in the United Kingdom, see HMRC Tax Manuals, DT19853A Jump up ^ Donahue, Larry. `` Just How `` Anonymous '' are Anonymous LLC 's ? ``. Law 4 Small Business, P.C. Retrieved 8 March 2017. Private equity and venture capital Basic investment types Buyout Venture Mezzanine Growth Secondaries Equity co-investment History History of private equity and venture capital Early history of private equity Private equity in the 1980s Private equity in the 1990s Private equity in the 2000s Terms and concepts Buyout Financial sponsor Management buyout Divisional buyout Buy -- sell agreement Leveraged recapitalization Dividend recapitalization Venture Angel investor Business incubator Post-money valuation Pre-money valuation Seed money Startup company Venture capital financing Venture debt Venture round Structure Private equity firms and funds Limited partnership Limited liability company Carried interest Management fee Publicly traded private equity Business Development Company Venture capital trust Private investment in public equity ( PIPE ) Pledge fund Investors Corporations Institutional investors Pension funds Insurance companies Fund of funds Endowments Foundations Investment banks Merchant banks Commercial banks High - net - worth individuals Family offices Sovereign wealth funds Crowdfunding Related financial terms AUM Cap table Capital call Capital commitment Capital structure Distribution waterfall EBITDA Envy ratio High - yield debt IPO IRR Leverage Liquidation preference M&A PME Taxation of private equity and hedge funds Undercapitalization Vintage year Private equity and venture capital investors Private equity firms Venture capital firms Angel investors Portfolio companies VIAF : 309848916 LCCN : no2014092724 GND : 7593437 - 1 NDL : 01016930 Retrieved from `` https://en.wikipedia.org/w/index.php?title=Limited_liability_company&oldid=815843663 '' Categories : Corporate taxation in the United States Legal entities Types of business entity Hidden categories : Pages with citations lacking titles Pages with citations having bare URLs Articles lacking in - text citations from May 2009 All articles lacking in - text citations Use dmy dates from May 2012 Wikipedia articles with VIAF identifiers Wikipedia articles with LCCN identifiers Wikipedia articles with GND identifiers Talk Contents About Wikipedia Bân - lâm - gú Беларуская Deutsch Ελληνικά Français Հայերեն हिन्दी Ирон ಕನ್ನಡ ქართული Latviešu Lietuvių Bahasa Melayu Nederlands 日本 語 Slovenčina Српски / srpski Svenska தமிழ் Тоҷикӣ Українська Tiếng Việt 中文 Edit links This page was last edited on 17 December 2017, at 15 : 15. 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Question: what is the license to form a corporation issued by state government called
Answer: limited liability company (LLC)