June 26, 2007
What does LLC Stand For?Three Big Letters of Significant Business Values
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Maybe you have already noticed the letters “LLC” as you have a stroll in the business district of your locality. You will find hundreds of business establishments bearing those three big letters at the end... |
Maybe you have already noticed the letters “LLC” as you have a stroll in the business district of your locality. You will find hundreds of business establishments bearing those three big letters at the end of their business names. As far as you know, letters like “Co.” or “Inc.” usually appears at the end of most business names operating in your area. But how did it happen that “LLC” are now the hottest end names in the business industry?
This article will focus its discussion on the nature of the Limited Liability Company, the three words behind the acronym LLC. We will try to get away with the technicalities of LLC. As much as possible, you will be provided with the basic concepts and other information that will make you understand the nature of LLC. Continue reading the rest of this article and know what LLC stands for.
Primer on LLC
LLC or also known as Limited Liability Company is the newest legal entity in the business industry. The state of Wyoming was the first state to pass a legislation in 1977 creating the LLC business structure. Today, all 50 states have enacted legislation allowing the formation of LLCs within their territory.
It is said to incorporate the best attributes of a limited partnership in terms of tax flexibility and of a corporation in terms of personal limited liability feature. LLC is like a limited partnership and an S Corporation as well because of the pass-through-entity feature. Individual LLC owners share the net profit or net loss of a particular fiscal year which flows through their individual income tax declarations. In other words, the taxes are all subjected to the individual owners and not to the LLC itself.
Also, LLCs are similar to a corporation because of the personal limited liability feature. The LLC itself will be held liable for any unpaid debts or obligations from the company’s creditors. The investments of each individual owner are at risk; however, because of their limited liability, the company’s creditors can not go after the LLC owner’s personal assets such as real properties.
So what made LLC preferred by most investors rather than the conventional corporation structure aside from its dual features that are mentioned earlier? The main advantage is most states are not requiring more formalities in the formation and operation of the LLC compared to a corporation. Other advantages are as follows:
1. If you plan on running a business all on your own, you can now start a single-owner LLC. Most states and the IRS (Internal Revenue Services) are now recognizing such single ownership of an LLC as a legitimate business structure.
2. LLC is considered to be a separate legal entity from its owners.
3. Unlike in a corporation where it is required to have a board of directors, such formalities are not required in an LLC unless otherwise it is stated in the LLC’s articles of organization or operating agreement.
4. The admission of owners or the transfer of an existing ownership from one person to another in an LLC needs the consent of owners having a majority in interest.
These are the basic concepts of an LLC. Not only it stands for Limited Liability Company, but it also means flexibility and protection for both your personal and corporate assets.
Recommended Reading
- Maryland Limited Liability Company Act- A Flexible Statute
- Explanation of LLC as a Business Structure
- What you Should Know in Forming a Nevada LLC
- What you Should Know about California LLC
- How to Form an LLC: 3 Basic Steps
