What Is A Limited Liability Company (LLC) / Definition of LLC


A LLC is a business entity organized under state law
that offers limited liability like a corporation along with the possibility of "passthrough"
taxation, unless it elects corporate treatment for federal tax purposes.
Therefore, an LLC is a cross between a partnership and a corporation.
An LLC is owned by one or more interest holders called "members" and any member
can exercise management rights. However, an LLC also allows the members to
manage the entity or to designate specific managers who may or may not be members,
to manage the entity as is done in many corporations. Like a corporation, an
LLC has the advantage of "perpetual" existence ó its business operations can continue
despite the death of someone who owns a business interest. Ownership interests
are transferred easily from one member to another.

Liability

As its name implies, the LLC provides limited liability for its owners similar to shareholders
in a corporation. The LLC owner risks only their investment in the business.
Other personal assets are not a risk, unless the owner has personally guaranteed the
debt.

Taxes

Under new IRS regulations, the LLC with more than one member will be taxed as a
partnership unless it elects to be taxed as a corporation and the LLC with only one
member will be disregarded for tax purposes. If it is treated as a
partnership, the LLC's earnings will be apportioned to its owners and taxed at their
personal tax rates, similar to the tax treatment of a limited partnership. However, it
is possible to elect corporate tax treatment, whereby it will be taxed as a corporation.

Administration

The process of creating an LLC closely resembles the process of creating a corporation.
Georgia law requires that "Articles of Organization" be filed with the Secretary
of State. An LLC has an "operating agreement" which, like the agreement of
partnership or LP, determines the conduct of the business, including the rights and
powers of its members, managers, and employees and which generally allows the
members to structure the company's affairs as they see fit, rather than as a statute
requires.

Definition of and Limited Liability Company (LLC)

A limited liability company (LLC) is an entity formed under state or
foreign law by filing articles of organization as an LLC. Unlike a partnership, none
of the members of an LLC are personally liable for its debts.

LLC Tax Classification: Treas. Reg. Section 301.7701-3 provides guidance on classification
for limited liability companies. Generally, if the business is an unincorporated
business entity, and there are two or more owners, the entity can choose
to be a partnership or a corporation. If an unincorporated business entity has only
one owner, it can either elect to be a corporation or the entity can be disregarded.
If an individual owns a disregarded entity, it is treated as a sole proprietorship. If
a corporation owns a disregarded entity, it is treated as a division or branch of the
corporation. See Form 8832, Entity Classification Election, for more details.
Note: While a single member entity, that does not elect corporate status, will
default to a disregarded status for some federal tax purposes, it will not be disregarded
for all federal tax purposes. For federal employment taxes (after January
1, 2009) and certain excise taxes (after January 1, 2008) it will be treated as a
separate entity.

Single Member LLC:

A single member LLC generally has the following choices:
(1) File Form 8832 to be taxed as a corporation
(2) If qualified, file Form 2553, Election by a Small Business Corporation (Under
Section 1362 of the Internal Revenue Code), to be taxed as an S corporation
(3) Be taxed (by default) as a disregarded entity
ï If the single member is an individual, the LLC will be taxed as a sole
proprietorship
ï If the single member is a business entity, the LLC will be taxed as a division of the
corporation

Multiple Member LLC:

A multiple member LLC generally has the following choices:
(1) File Form 8832 to be taxed as a corporation
(2) If qualified, file Form 2553 to be taxed as an S-Corporation
(3) Be taxed (by default) as a partnership
Note: A husband and wife, who are owners of an LLC, and share in the profits of
such, can file as a single member if they reside in a Community Property State
(Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington,
or Wisconsin). Publication 555, Community Property, contains additional information
on Community Property laws.

If you are organized as a limited liability company and require an EIN, please
refer to the instructions for Form SS-4 for information on completing the form
or apply online using the Internet EIN application available at www.irs.gov and
select ìLimited Liability Companyî as the type of entity you are establishing.

Limited Liability Company (LLC) - Definition



A Limited Liability Company (LLC) is a form of business organization that incorporates components of both a partnership and a corporation. Specifically, this organizational structure is treated like a corporation for state law purposes and thus offers limited liability to its owners. Yet, the limited liability company is treated by the Internal Revenue Service and by the West Virginia Department of Tax and Revenue as a sole proprietor if you have one member or a partnership or corporation for multiple members for income tax purposes.

Advantages of a Limited Liability Company

    * More flexible than a limited partnership or S-Corporation with similar tax advantages.
    * Limited liability to the members.
    * Income is taxable only once at the memberís tax rate.

Disadvantages of a Limited Liability Company

    * Restrictions to transferability.
    * Life of the LLC varies from state to state.
    * Does not have stock therefore not transferable.

Limited Liability Company (LLC)

    * For-profit only.
    * May be fixed term or perpetual.
    * May be single-member or multiple-member company; members may have authority defined in operating agreement.
    * May be member-managed or manager-managed.
    * Members have equal ownership unless otherwise defined by agreement.
    * Company operated under articles of organization. Additional provisions may be provided by operating agreement, or if none is written, then by the             provisions of law.
    * Law provides personal liability protection for members and managers acting in good faith.
    * May be taxed as partnership under federal law, depending on structure.
    * Annual report and attorney-in-fact fee required.
    * File Articles of Organization for Limited Liability Companies.