A limited liability company (LLC) combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. An LLC protects its owners from personal responsibility for its debts or liabilities. LLCs are classified as “pass-through” entities for tax reasons.
Roles and Responsibilities
Identifying roles and responsibilities for members or managers of an LLC is crucial for a successful venture. Regular meetings ensure members are informed about the company’s activities, goals, and objectives. Accurate record-keeping also plays a vital role in the smooth functioning of the company.
Formation and Operations
To form an LLC, articles of organization or a certificate of formation must be filed with the state. Many LLCs create an operating agreement detailing ownership interests, profit/loss allocation, and voting rights of members. LLCs do not have shares of stock like corporations. LLC members share ownership interest in the company.
The main advantage of an LLC is flexibility and limited liability for owners. An LLC limits owners’ personal liability and allows pass-through taxation. The cons are increased legal and tax compliance complexity versus a sole proprietorship. Overall, an LLC combines limited liability with partnership taxation flexibility.