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Characteristics of Business Entities

 

 

HOME > INCORPORATE ONLINE > CORPORATIONS vs. LLCs


A limited liability company, or "LLC", is an unincorporated business entity which is a cross between a corporation and a partnership. Like a corporation, an LLC protects its members from personal liability for the debts and obligations of the company. Like a partnership, an LLC is typically formed by the filing of a "certificate of formation" or similar certificate with the Secretary of State and is taxed like a partnership. Also like a partnership, the members of LLCs typically enter into an operating agreement which establishes how the LLC is managed. This agreement controls the management of the company and how the members relate to each other.

Where S Corporations have limits on the number of shareholders who also must be US residents, LLCs have no restrictions in these regards. This makes the LLC a particularly suitable vehicle for non-US residents (See Company Formation for US Non-residents.) An LLC can have more flexibility in management because this is controlled by the members agreement not by the Business Corporation Act of the state.

NOTE: See Characteristics of Different Business Entities for a comparison of different business forms.


Unless the LLC elects to be taxed as a corporation, it will be taxed as a partnership - income and deductions of the LLC will be passed through to members for inclusion in their personal returns. See "pass-through" taxation for more information.

Bottom Line:
If one or more of the owners are non-US citizens, if you have a non-traditional management structure and so need more flexibility than the standard Officers and Directors arrangement of corporations governed by the state's Business Corporation Act, then an LLC may be for you. If tax considerations are a driving factor, you can achieve the same pass-through taxation by electing S Corporation status as a corporation.

 

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