Limited liability company
A Limited liability company (denoted by L.L.C. or LLC) is a type of legal entity which has only relatively recently been made possible to establish in the United States and many other, mainly anglophone, countries. An LLC is similar to a corporation and a limited partnership.
The concept of an LLC was apparently modelled after the German GmbH (Gesellschaft mit beschränkter Haftung; LLC is a broad translation of the term). These have existed in German-speaking countries for some time--in Germany itself since 1892. The concept was adopted by many English-speaking countries because LLCs have some advantages over corporations. It is sometimes said that an LLC is "kind of a 'light' version of an Inc. or Ltd." This is a generalisation, however, and may be misleading or wrong in some cases.
Basically, an LLC allows for the flexibility of a partnership structure within the framework of limited liability, such as that granted to corporations. Another advantage of an LLC over a limited partnership is that the formalities required for creating and registering LLCs are much simpler than the requirements most states place on forming corporations; often they are no more complex than creating a corporate structure.
LLC vs. Inc. & Ltd.
Advantages of an LLC
- Simpler to set up
- No requirement of an annual general meeting for shareholders
- No double taxation
- Limited liability
- (LLCs can sometimes be held liable, usually in the cases of personal injury, fraud, or negligence by the owner.)
- Profits taxed personally
- Can be set up with just one natural person involved
Disadvantages of an LLC
- It may be more difficult to raise capital for an LLC, as investors may be wary of submitting funds to an entity whose liability is limited
- The possible lack of any operating agreement requirement can cause problems
