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A limited liability company, or "LLC", is
an unincorporated business entity which is a cross between
a corporation and a partnership. Like a corporation,
an LLC protects its members from personal liability
for the debts and obligations of the company. Like a
partnership, an LLC is typically formed by the filing
of a "certificate of formation" or similar
certificate with the Secretary of State and is taxed
like a partnership. Also like a partnership, the members
of LLCs typically enter into an operating agreement
which establishes how the LLC is managed. This agreement
controls the management of the company and how the members
relate to each other.
Where S Corporations have limits on the number of shareholders
who also must be US residents, LLCs have no restrictions
in these regards. This makes the LLC a particularly
suitable vehicle for non-US residents (See
Company Formation for US Non-residents.) An LLC
can have more flexibility in management because this
is controlled by the members agreement not by the Business
Corporation Act of the state.
NOTE: See Characteristics
of Different Business Entities for a comparison of different
business forms.
Unless the LLC elects to be taxed as a corporation,
it will be taxed as a partnership - income and deductions
of the LLC will be passed through to members for inclusion
in their personal returns. See "pass-through"
taxation for more information.
Bottom Line:
If one or more of the owners are non-US citizens, if
you have a non-traditional management structure and
so need more flexibility than the standard Officers
and Directors arrangement of corporations governed by
the state's Business Corporation Act, then an LLC may
be for you. If tax considerations are a driving factor,
you can achieve the same pass-through taxation by electing
S Corporation status as a corporation.
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