What is a Limited Liability Company?

A limited liability company (or “LLC”) is a relatively new business structure allowed by state statute that offers these basic features: (1) its owners have limited liability for the entity's debts and obligations, similar to the status of shareholders in a corporation or limited partners in a limited partnership, and (2) it provides tax advantages with income and losses normally being passed through to the owners as if it were a partnership or sole proprietorship.

LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.

Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members and most states permit “single member” LLCs, those having only one owner.

A few types of businesses generally cannot be LLCs, such as banks and insurance companies, and there are special rules for foreign LLCs. LLCs are considered securities in some states and may be required to meet the standards of securities offerings.