Limited Liability Companies


The Limited Liability Company (LLC) provides a relatively new way of doing business that combines the advantages of a partnership and a corporation. A business can be conducted in a number of forms, such as a partnership, a regular corporation, or an S corporation. Doing business as a partnership has many tax advantages. Income is taxed only once, and there is great flexibility in how income and deductions are passed through to the partners. But the partners' personal assets are put at risk, since each general partner is personally liable for the partnership debts and obligations. Corporations don't have the liability problem, since shareholders aren't responsible for debts of the corporation. However, a corporation's income may be taxed twice, once when the corporation earns it and once when it is distributed to the shareholders in the form of dividends. Electing to be an S corporation avoids double taxation, but S corporations have many restrictions as to the number and type of shareholders, classes of stock, ownership of subsidiaries, etc..

The Limited Liability Company (LLC), which is now recognized in all states, offers an alternative to this dilemma. An LLC is owned by investors known as members. It is managed either by the members themselves or by designated managers. Like shareholders of a corporation, the members' liability is limited to the amount of their investment. Yet, if the LLC is structured properly, it will be treated as a partnership for tax purposes. And there are no restrictions on the number and type of members, as there are with the shareholders of an S corporation.