Dec 13, 2012

Limited Liability Company

Limited Liability Company

Limited liability companies commonly called an LLC differ slightly from one country to another.

The limited liability company (LLC) is a hybrid legal entity that has both the characteristics of a corporation and of a partnership. Like a corporation, a limited liability company or LLC, has a separate and distinct legal entity from its members. This means that an LLC can obtain a tax identification number, open a bank account and do business, all under its own name.

The primary advantage of an LLC is that its owners have limited liability, meaning that, they are not personally liable for the debts and liabilities of the LLC. This means that if the business owes money or faces a lawsuit, only the assets of the business itself are at risk. Creditors usually can’t reach the personal assets of the LLC owners, such as a house or car. However, both LLC owners and corporate shareholders can lose this protection by acting illegally, unethically, or irresponsibly.

Another benefit is that while the limited liability feature is similar to that of a corporation, the availability of pass-through taxation to the members of a LLC is a feature of partnerships or a sole proprietorship in order for the owners to avoid double taxation. This is different from a regular C Corporation, which pays a corporate tax on its net income (the first tax). Then, when the corporation distributes profits, the stockholders pay income tax on dividends (the second tax). With an LLC, the members have the option to have the profits “pass through” to the owners who pay taxes at their individual tax rates.

Some other benefits of an LLC include flexible ownership and management.

For these reasons, many people say the LLC combines the best features of the partnership and corporate business structures.

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