LLC Law and Legal Definition
The limited liability company or LLC is not a partnership or a corporation. It is a business structure that is a hybrid of a partnership and a corporation. Its owners are shielded from personal liability and all profits and losses pass directly to the owners without taxation of the entity itself. To form an LLC, articles of organization must be prepared and filed with the state and filing fees, initial franchise taxes, and other initial fees must be paid.
An LLC is owned by its members. They are analogous to partners in a partnership or shareholders in a corporation, depending on how the LLC is managed. A member will more closely resemble shareholders if the LLC utilizes a manager or managers, because then the members will not participate in management. If the LLC does not utilize managers, then the members will closely resemble partners because they will have a direct say in the decision making of the company. An LLC can have an unlimited number of members (owners) and non-US residents can be members of an LLC. LLCs are allowed to have subsidiaries without restriction and can be owned by another corporation. A corporation requires formalities, annual meetings of shareholders and directors are required each year and meeting minutes are required to be kept with the corporation’s records. LLCs are not required to hold such meeting; however, it is a good idea to document major decisions of the company.
While a corporation’s existence is perpetual, an LLC typically has a limited life span. Most states require that an LLC list a dissolution date in its articles of organization and certain events such as the death or withdrawal of a member can cause the LLC to dissolve. Also, typically the approval of the other members must be received to transfer shares in an LLC.