What Does LLC Mean

What does LLC mean? "LLC" stands for limited liability company (LLC), and this type of company emerged as an alternative to traditional corporations and partnerships. Its advantages are similar to those of corporations and partnerships, but it leaves behind some of the more treacherous aspects of these less flexible business entities.

Liability Advantage
The definition of "limited liability company" is a business entity that can be created by one or more interested parties. The founders are called members, not partners, in an LLC, and the major advantage is that such an entity provides limited liability for each member. This means that any business loss, debt or other negative aspect of the company is limited to the business and protects the member's personal assets and finances. As different states enact regulations concerning LLCs, the amount of liability can vary.

Other Advantages
Another advantages of the limited liability company formation is that the management structure of the entity is quite flexible compared to the structure of a corporation. LLCs are not bound to formal board elections, annual shareholder meetings and other rigid requirements that a corporation must meet to stay compliant. LLCs are also exempt from double taxation, which happens when a corporation is taxed on earnings, then again on dividends. An LLC acts as a "pass-through," where the members pay taxes on income only once.

Disadvantages Of An LLC
Because LLCs are widely regulated, depending on the state of operation, there is little consistency from state to state where taxation and operating procedures exist. For companies that plan to expand across state lines, regulations for each state may conflict or simply take time to execute based on varying laws and guidelines for LLCs. LLCs are often more expensive to set up than partnerships or even sole proprietorships. Also, LLCs are not the most ideal entity to create if the business is planning to grow and accumulate new assets. For example, if a company has the intention of going public at some point in the future, a different structure is better suited for that transition than an LLC.

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