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A small business blog featuring tips to help entrepreneurs succeed in the small business world. Topics include family business, human resources, marketing, money, networking, operations, ownership, startup, taxes and technology.
Which Business Entity is Right for You? (Part 3)


Limited Liability Companies, or LLCs, combine several features of Corporations and Partnerships, but are neither. Often people call them “limited liability corporations,” but that is incorrect. The owners of an LLC are termed “members” rather than partners or shareholders. The number of members is unlimited and can be a combination of individuals, corporations or other LLCs.

LLC members are not held liable for the negligence and/or debt of the LLC they have ownership interest in, unless they sign a personal guarantee. Like a corporation, an LLC is an entirely separate existence from the individuals involved.

Another benefit is that there are fewer requirements for an LLC. It is not necessary to keep meeting minutes or record resolutions, as in a corporation, and you are not required to have a board of directors or make officer designations for the members.

Some states do have minimal requirements for an LLC, but what those are varies from state to state. Typically, you are also required to file Articles of Organization and Operating Agreement when registering your business as an LLC.

The designated distribution of income to the members is entirely flexible, leaving the division to be anywhere from 50-50 to 10-90, and, of course, open for division among any number of members.

As a member, you also have much more access to the assets of the company. You can take assets out for personal and/or business use without incurring tax liability. Owners also have more leeway when it comes to writing off business losses when associated with an LLC.

The lifetime of an LLC is limited. If any member dies or files bankruptcy, the LLC is dissolved. Additionally, an LLC is not nearly as appealing to possible investors, so if you are considering going public with you company, or issuing shares to your employees someday, an LLC is not the route you should go.

However, if legal liability protection and one level of taxation are primary concerns for your business owners — who consist of multiple and diverse individuals and/or businesses — than an LLC is probably just right for you.

Part 4: Partnerships
Part 1: Sole Proprietorships
Part 2: Corporations

• Business Structure Basics
• Limited Liability Company 101
• Limited Liability Company
• Corporation, Partnership, or an LLC?

Related Small Business Buzz Posts:
Which Business Entity is Right for You? (Part 4)
Which Business Entity is Right for You? (Part 2)
Which Business Entity is Right for You? (Part 1)
Avoid Legal Trouble
Define Organizational Structure & Management – How to Write a Business Plan : Part 3 of 8

By Michelle Cramer
Saturday, December 29th, 2018 @ 12:01 AM CDT

Business Law, Startup |