Introduction
Establishment of a corporation can take many forms. Limited liability company (LLC) is one such business structure. LLC is a business formation where the personal assets of owner/s are protected from the business liability. As the name suggests, owners have limited their business liability in terms of any losses.
It is a hybrid legal entity and has characteristics of both a corporation and a partnership. This hybrid structure allows business/corporations to have the flexibility of a partnership, tax benefits of a sole proprietorship and management of a corporation.
Characteristics of Limited Liability Company
Limited Liability Protection
In LLC, the personal assets of the owners and stakeholders are safe from business obligations. This means, in case of any lawsuit, debt obligations , owners or stakeholders don’t have to pay off the business liability by selling their assets like homes, cars or any other personal assets unlike other corporate business structures.
Perpetual Existence
LLC has a perpetual existence. This means the company exists even if the ownership changes. The company continues to operate under the new ownership uninterrupted. No matter the original owners decide to sell off their shares to new stakeholders or decide to retire, the business runs in a normal way.
Pass-through Taxation
LLC avoids double taxation and is entitled to tax treatment as an individual. Profits and losses of the LCC are treated as owners’ personal income i.e. any tax due is paid at individual level. Such entities are not taxed at business level. This allows companies under LLC to potentially save taxes.
Management Flexibility
Owners can choose the structure of their management. They can decide the terms of how the company is going to manage its function and structure. The management structure best suits the business. Most agreed structures in LLC are either member-manager or manager-managed. In member-managed, owners participate in management and in manager-managed, owners hire professionals for management.
Compliance Requirement
LLC has simplified and straightforward steps during the establishment process. The process of establishment is generally less complex and simpler. Along with this, there are fewer compliance requirements for unlikely corporations. Due to all these simpler requirements, startups and small businesses are favoring this hybrid structure of operations.
Limitations of Limited Liability Company (LLC)
