Limited Liability Company Explained

LLC’s did not exist in the U.S. until 1977.  A Limited Liability Company is a blend between a sole proprietorship or partnership and a corporation.  It is similar to a corporation in that its structure limits liability of the business owner in the event of bankruptcy or other circumstance.  Like a sole proprietorship or partnership, it is taxed as a “pass-through” entity, meaning it does not pay taxes on its net income and the members can have the profits pass through to owners who then pay taxes, unlike C Corporations which are taxed on both.

If the owner of an LLC dies or retires, the company may automatically dissolve like with sole proprietorships.  However, with this type of company an operating agreement can set in place terms to avoid such disbanding.  From ownership and liability standpoint, LLC’s are truly a hybrid between corporations and partnerships.