limited liability corporation

LIMITED LIABILITY CORPORATION


 

When forming an LLC, the "advantages of limited liability corporation" may be touted. The definition of a limited liability corporation is that it is really a "limited liability company" - "LLC" for short. Corporations and LLCs both limit the liability of their participants to the assets they commit to the enterprise, and there are other similarities. The llc forms may differ, but the substance is the same: there is a formation document (normally called articles of organization, as compared to articles of incorporation of a corporation) and a governing document (normally called operating agreement, as compared to the bylaws of a corporation). The remaining llc forms (minutes of organization meeting, documents evidencing ownership of interests in the LLC, etc.) are also quite similar to their corporate counterparts.

While the protection is the same and the initial documents are similar, there are differences. A key difference is that maintaining an llc usually requires a little bit less paperwork. In those cases where pass-through taxation is essential, and where the entity does not qualify for the S corporation election, the choice is obvious. Where pass-through taxation may be obtained with either entity and there are advantages to S corp tax treatment, an LLC may obtain the same advantages by first electing to be taxed like a corporation, then filing an s corp election. In fact, all other things being equal, forming an llc is preferable to incorporating.

The problem is that all other things are quite often not equal. The laws, taxation policies, reporting requirements and other applicable factors in a particular state may well outweigh the inherent advantage of the LLC and dictate incorporating instead, rather than forming an LLC. In this regard, it is important to remember the starting premise of this page - an LLC is not just a type of corporation, but an entirely different kind of company formed under separate laws in each of the states. We will be happy to assist you in sorting out the differences in your state.

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