A limited liability company is a type of business structure which blends many elements of a partnership structure with a more official corporate structure. The limited liability standing is a legal standing which provides limited liability for the owners in the debts of the company.
A limited liability company, contrary to popular belief, is not a corporate structure, nor is it in any way a corporation. It is called an unincorporated association and the primary characteristic that it shares with a corporation is that of limited liability of the owners. It also shares a characteristic with a partnership, and that is the ability to perform pass through income taxation.
A limited liability company is not the strongest form of business when it comes to protecting and separating personal interests from the interests of the business, however, as many court cases have pierced the “corporate veil,” or the ability of the company to protect the owner of the company from personal liability from debts, especially in the cases where fraud or some other kind of misrepresentation has been committed.
The main advantage of a limited liability company, or LLC, as it is often shortened, is its flexibility concerning matters of taxation. If there is only one owner, the pass through income taxation benefit of the company allows for the owner to report the gains and losses of the company on a personal income tax form. However, the limited liability company may also choose to be taxed using IRS form 8832, and the limited liability company can also be treated as a regular C corporation or even an S corporation depending on which structure would be more advantageous to the owners of the company.
There is also much less paperwork in the maintenance of a limited liability company than there is with a corporation, so businesspeople without much time to dedicate to the bureaucracy of a company might find themselves well served by forming a limited liability company. Also, the limited liability company is much less likely to be stolen than another type of company, because investors do not consider the limited liability company, for the most part, worth their time, even if it actually is.