Limited Liability Company

An LLC is a hybrid entity, governed by state law.  Its stockholder or members can elect to have the entity taxed as either a corporation or a partnership.  Members usually elect treatment as a partnership. Unlike a partnership, members of an LLC have limited liability, as if they were stockholders in a corporation. Unlike the stockholders of a C Corporation, the members are not subject to double taxation.

LLC’s are managed either by its members, or by managers. That is determined when the LLC is first formed, and is set forth in the Operating Agreement; a document roughly equivalent to corporate bylaws and partnership agreements.

An LLC’s managing member, or any member who participates in operation of the LLC’s business for more than 500 hours a year, is subject to self-employment tax on compensation received from the LLC.

A comparison is provided here between the corporation and LLC forms with respect to the factors that will be most important.

LLCs should conduct annual meetings, just like corporations, and maintain minutes of those meetings.  For more information, see Prepare Your Minutes of Annual Meetings.

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(281) 440-6416 or (936) 321-2583
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