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You are here: Information Center >> Small Business >> Selecting a Legal Structure for Your Business >> Limited Liability Company

Limited Liability Company

The Limited Liability Company is another hybrid form of organization, blending features of a corporation and a partnership. It has the limited liability advantage of a corporation and the tax advantage of a partnership. Although LLCs are a fairly recent form of business, they are now recognized by all states and the District of Columbia.

Owners of the LLC are called "members." If there is no written operating agreement, each member is considered to be a "manager." An operating agreement can identify specific members to be managers.

Forming a Limited Liability Company

As with a corporation, there are a series of steps to form an LLC:

  1. Apply to your Secretary of State for your company name. The name identifies the form of business by using the words "Limited Liability Company" or "LLC."
  2. Plan and agree to an operating agreement.
  3. File articles of incorporation with your secretary of state, including the required filing fees.
  4. As with other incorporations, you will need a designated registered agent and office to be filed with your secretary of state.
  5. Be sure to obtain licenses and permits at the local, state and federal level and pay the necessary fees.

What other forms do I need to operate an LLC?

Each year, you will need to file an annual report with your secretary of state.

Tax Aspects of a Limited Liability Corporation

If an LLC is structured properly, it is taxed in the same way as a partnership or S corporation. That is, each member/owner is allocated a share of the profit or loss, which is included on his or her state and federal tax returns. For tax purposes, LLC members are generally considered to be self-employed. That means they are responsible for their own estimated income taxes and related taxes.

It is important to make sure that an LLC is structured properly, or it can be taxed like a C corporation.

Liability for LLC Members

Beyond a memberís investment in the business, he or she is not personally at risk for debts or other liabilities of the business. A memberís personal assets are not considered to be liable for the actions of the business, unless the member guarantees a debt of the business or acts in a way that opens opportunity for liability.

Dissolving or Closing an LLC

The LLC is considered to be perpetual unless certain events take place. The LLC would be dissolved if a time is specified or a triggering event takes place as specified in the articles of organization. Other events that would trigger dissolution are:

  • A member withdraws from the organization, and remaining members do not agree to continue the business. (This possibility can be anticipated and become part of the operating agreement.)
  • All members agree and give their written consent to dissolve.
  • A court order requires dissolution.