THE LIMITED LIABILITY CORPORATION: A NEW OPTION IN COMPANY FORMATION

2007-03-08 10:33:40

( Business )



A crucial decision in company formation is choosing what business structure to use. Typically, you only have three choices: sole proprietorships, partnerships and corporations. But now, a newer option is gaining popularity in some states. It is the limited liability corporation.

Commonly known as limited liability company, a limited liability corporation is a type of business organization that merges several characteristics of both the partnership and corporate structures. The owners of the company are also called members.

A limited liability corporation is an entity separate from its owners. Owners are not personally liable for company debts. Lenders cannot go after the members’ assets to meet the company’s obligations.

Owners are free to adopt any profit sharing method. Profits and losses need not be equally divided among members.

The limited liability corporation is not a taxable entity. There is no double taxation because the income of the company flows through the members. It is the members who pay taxes based on the distribution of profits.

Though a limited liability corporation is more complex than a partnership, it involves less paperwork than a corporation. Limited liability corporations are not obligated to hold formal meetings and keep minutes.

Just like a partnership, a limited liability corporation has no perpetual existence. It is dissolved when a member passes away or the company undergoes bankruptcy.

Forming a limited liability company is simple. You just have to file the Articles of Organization and pay the state fees. In addition, certain states may require you to publish a notice in the local newspaper of your intent to form a limited liability corporation.

Knowing the advantages and disadvantages of a limited liability corporation is of great assistance. However, you should also consider the special circumstances of your company to determine what form of business organization would best meet its needs.


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