+86 21 658 939 33 support@translegal.com.cn

In the UK, the term limited liability company can mean either a private company limited by shares (Limited or Ltd.) or a public limited company (plc). This article deals with the LLC in the United States.

The limited liability company (LLC) is a relatively new form of business entity which is not available in all jurisdictions. LLCs are a hybrid of the partnership and corporate forms that has evolved in response to the needs of businesses for which the existing forms of partnership and corporation were unsuitable.

For example, a significant disadvantage of a general partnership is that each partner has the right to dissolve the partnership and force the sale of its assets. Alternatively, the formalities and double taxation of the corporate form can be problematic for smaller businesses. As a result, states created a new business form that combines some of the key features of both partnerships and corporations, namely corporate limited liability, contract-based flexibility, partnership default rules for taxation, and flow-through taxation.

LLCs in the US are formed by filing a certificate of formation and are generally governed by statutes modelled on the Uniform Limited Liability Company Act. In most jurisdictions, the formalities required for forming and operating LLCs are simpler than those for limited partnerships or corporations. For example, some jurisdictions do not require written operating agreements or annual meetings. LLCs may be owned by one or more members and members usually exercise control of the business in accordance with an operating agreement (sometimes called a Limited Liability Company Agreement). As in the corporate form, LLC members enjoy limited liability protection with their liability limited to the amount of capital contributed, unless acting as a guarantor of company debt. Significantly, they may be taxed as either a partnership, thereby avoiding the double taxation of the corporate form, or as a corporation depending on the election made. For example, an LLC with more than one member is treated as a partnership by default, but may elect to be treated as a corporation.

To avoid being treated as a corporation for tax proposes an LLC must avoid having too many corporate characteristics such as perpetual existence, free transferability of ownership and centralized management.