Asked by ELIZABETH DELAROSA on Apr 23, 2024
Verified
Describe the limited liability company (LLC). How is it formed? What are some of its advantages and disadvantages?
Limited Liability Company
A Limited Liability Company (LLC) is a business structure that offers personal liability protection to its owners, along with tax and operational flexibility.
Formed
The process of creating or establishing something, often referring to the formation of a legal or structured entity such as a company or agreement.
Advantages and Disadvantages
A consideration of the positive and negative aspects of a particular decision, action, or strategy.
- Explain the structure and characteristics of a limited liability company (LLC).
Verified Answer
A major advantage of the LLC is that, as indicated, it does not pay taxes as an entity. Rather, profits are "passed through" the LLC and paid personally by the owners of the company, who are called members instead of shareholders. Another key advantage is that the liability of members is limited to the amounts of their investments. In an LLC, members are also allowed to participate in management activities, and under some state statutes, the firm's managers need not even be
members of the LLC. Yet another advantage is that corporations and partnerships, as well as
foreign investors, can be LLC members.
Additionally, in contrast to S corporations, there is no limit on the number of members of the
LLC. Finally, part of the LLC's attractiveness to businesspersons is the flexibility it offers.
The members can themselves decide how to operate the various aspects of the business through a simple operating agreement.
The disadvantages of the LLC are relatively few, so this form of organization has become very popular for smaller, privately held companies. Generally, the major disadvantage has been the lack of uniformity among state statutes with respect to LLCs. The differences among the states are disappearing, however.
Learning Objectives
- Explain the structure and characteristics of a limited liability company (LLC).
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