Limited Liability Company (LLC)
The Limited Liability Company is a relatively recent type of U.S. business structure that combines the limited personal liability feature of a corporation with the single taxation feature of partnerships and sole proprietorships. An LLC's profits and tax benefits are split any way the stockholders (owners that are businesses) and shareholders (owners that are individuals) choose. In most states, the LLC can have one owner or many.
The LLC structure offers simplicity, liability protection, and financial flexibility.
Each owner of an LLC may elect to be taxed as a sole proprietor, partnership, S-corp or C-corp. An LLC files a tax return only for the purpose of information; each shareholder files separately.
LLC owners have less administrative paperwork and record keeping than a corporation but many of the benefits in terms of limited liability.
LLCs have more financial flexibility than a sole proprietorship, such as the ability to raise capital needed through shareholder investments (and co-ownership) in the business.
The members of an LLC must establish governance and protective provisions pursuant to an operating agreement or similar governing document. The management structure of an LLC may be unfamiliar to many. Unlike corporations, LLCs are not required to have a board of directors or officers. (This could also be seen as an advantage.)
It may be more difficult to raise financial capital for an LLC than a corporation. State taxation of LLCs varies: Many states, including Alabama, California, Kentucky, New York, Pennsylvania, Tennessee, and Texas, levy a franchise tax or capital values tax on LLCs. Annual renewal fees for the business structure also vary and can be higher than other entities.