LIMITED LIABILITY COMPANY | MEANING, FEATURES, ADVANTAGES AND DISADVANTAGES

A limited liability company (LLC) is a business structure that incorporates the pass-through taxation of a sole proprietorship or partnership business with a corporation. 

It is a legal entity that possesses some characteristics of sole proprietorship/partnership and corporations. Generally, the LLC structure provides for the greatest liability protection, flexibility of investment, and ownership structure of all the flow-through entities. 

Under specific circumstances, LLCs may be established as not-for-profit organizations. 

One feature that LLC has in common with a corporation is “Limited liability”, that is, the property of the owner can not be used to settle the liabilities and debts of the business.

An LLC is well-suited for companies with a single owner. The owner of valuable rights in an LLC is known as a  "member," rather than a "shareholder.”

Features Of An Llc

1. When LLC is formed, it is said to be “organized” not “incorporated”.

2. Its founding document is the “article of organization” not “article of the corporation”

3. Ownership is represented by “membership interest” not “Stocks of shares” as would have been in the case of a corporation.

4. The document evidencing or certifying LLC ownership is called a “membership certificate”.

5. Owners are called members and not shareholders.6. Employees may be compensated with LLC Units

Advantages Of Llc

1. LLC is always provided with flexible tax regimes. It may decide to be taxed as a sole proprietorship/partnership and corporation

2. The liability of the members is limited. as Members are protected from portions or all liability for acts and debts of the LLC, depending on the jurisdiction.

3. There is flexibility in management as less organizational, administrative, managerial paperwork and record-keeping are require from LLC. 

4. Pass-through taxation (i.e. no double taxation). In most jurisdictions, LLCs are treated as entities separate from their members. This means that profits are taxed privately at the member level, not at the LLC level. 

Remember that double taxation is one problem that the corporation faces, you can know more about corporations here.

5. It may be set up with just one natural individual. LLCs in some regions can be set up with just one natural person involved. Furthermore, unlike corporations, they're not required to possess a board of directors or officers.

Disadvantages Of Llc

1. Raising financial capital for an LLC is problematic because investors are pleased investing funds in the better-understood corporate business with a view toward an eventual initial public offering(IPO). 

The apparent solution will be to form a fresh corporation and integrate into it, dissolving the LLC and converting it to a corporation.

2. There may be an increase in renewal fees.

3. The management pattern of an LLC may not be clearly stated as they are not required to have a board of directors or officers.

4. Taxing jurisdictions outside the US are probably going to treat a US LLC as a corporation, not minding its special treatment for US tax purposes. 

for example, a US LLC doing business outside the US or as an inhabitant of foreign countries that do not recognize its business structure are sure to be treated like a corporation.

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5. The principals of LLCs use numerous titles—e.g., member, manager, managing director, chief executive officer, president, and partner. 

As such, it can be arduous to determine who has the permission to enter into a contract on the LLC's behalf.Wait a minute, what is a sole proprietorship?

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