In prior posts, we've discussed how those looking to start their own business will first need to determine the legal entity that will best serve their purposes and protect their interests whether that's as a sole proprietorship, general partnership or another option.
Indeed, we've spent some time exploring both corporations and limited partnerships, and in today's post, we'll take a closer look at forming as a limited liability company or LLC.
Limited liability companies
An LLC functions as something of a hybrid, possessing some of the legal attributes of a limited partnership and a corporation.
In general, an LLC is owned by one or more members, all of whom are granted management rights, the ability to manage general business affairs and the power to hire managers to handle day-to-day operations.
Furthermore, the structure of an LLC is such that ownership interests are easily transferrable among members, and it enjoys "perpetual existence," meaning that if one member should die, business operations remain uninterrupted.
As far as liability is concerned, the members of an LLC are not personally liable for any debts or obligations incurred. What this means is that absent any personal guarantees, only their investment in the business is ever truly at stake.
The true hybrid nature of an LLC, however, comes into play regarding taxation. Specifically, those LLCs with more than one member will be taxed in the same manner as a limited partnership, meaning that each member/owner will be taxed according to their respective shares of the LLC's profits. However, the members/owners do have the option of instead electing to be taxed as a corporation, something that may be more favorable.
Consider speaking with a skilled legal professional if you would like to learn more about limited liability companies or business formation in general.