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 liability partnership. A variant of the LLC available in some jurisdictions, typically limited to licensed professionals such as lawyers or engineers, is the professional limited liability company (denoted by "P.L.L.C." or "PLLC").
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 v. LLP
A limited liability company (LLC) differs from a limited liability partnership (LLP) in that the LLP has the organizational flexibility of a partnership and is taxed as such, and in that all partners of the LLP remain liable for the other partners' debts and obligations.
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