Limited Liability


Every state has enacted laws permitting the formation of a Limited Liability Company (LLC) as an alternative to traditional corporations, general partnerships, and limited partnerships.

LLCs have become popular because they offer flexibility in management and other matters, as in a general partnership, while providing the benefit of limited liability for investing members, as in a corporation. Limited liability companies are formed and established much like a corporation. The founders must prepare and file the proper documents with the state, according to the state’s limited liability company law. These laws normally state that the LLC can have powers like a corporation. However, some states restrict LLCs from certain activities, such as banking, insurance and professional services. LLCs have members, similar to a corporation’s shareholders. These members must have a written agreement, much like a partnership agreement. The IRS has also determined that an LLC meeting certain requirements might be taxed as a “pass through” entity like a partnership or S corporation. Many of the restrictions placed on S corporations, such as limits on the number of shareholders, do not exist for the LLC. LLCs also differ from regular corporations in other ways. For example, LLC laws do not permit the LLC to have unlimited life. Most laws restrict LLCs to a maximum life of thirty years. Also, compared to shareholders in a corporation, LLC members are subject to different rules with respect to transferring their membership interests, and withdrawing and distributing profits. The LLC is a relatively new entity. Some matters remain unsettled, such as the treatment of an LLC by state law when it was formed in another state. You should consult your attorney to determine if an LLC is appropriate for a given business enterprise.