Definition of Limited Liability Corporation

by Subha Varadan; Updated September 26, 2017

Limited Liability Company (L.L.C) is a form of business organization that combines the benefits of both a partnership and a corporation. The term limited liability implies that creditors can seize the company’s assets but cannot seize the personal assets of the shareholders.

Structure.

The owners of the Limited Liability Company (L.L.C) are called “members,” and enjoy limited liability, whereas the creditors have access to only the company’s assets. The earnings of the company are taxed at personal income tax rates.

Legal Considerations

The L.L.C formation requires the preparation of the “certificate of formation” and the “articles of organization.” Another document titled the “operating agreement” is also needed to specify the duties, governance, division of profits and ownership rights of the company.

Limitations.

The L.L.C, unlike the corporation, has a limited lifespan as specified in the documents of its formation. The transfer of ownership is difficult because the consent of all the members is required.

Advantages - Unlimited members.

The capital for LLC comes from its members, but there are no restrictions on the number of members. The members also need not be individuals and can be other companies.

Advantages -Tax structure.

The LLC profits are taxed on the personal income tax levels of the members. A corporation’s shareholders (owners), on the other hand, are taxed twice because their corporation pays corporate taxes, and they have to pay personal taxes.

About the Author

Subha Varadan has a bachelor's degree in architecture from India and an M.B.A in finance and supply chain management from California State University East Bay (CSUEB). Varadan won the "Outstanding Graduate Achievement Award " for her M.B.A. She has primarily written on financial topics for Demand Studios from 2008 and has been published on eHow.