Characteristics of LLC

Certain characteristics of LLC business operations are enticing to many small business owners because LLCs offer personal liability protection and flexibility in terms of management structure. States have varying laws in terms of LLC formation, which is why you should check with your state government regarding the necessary guidelines. Regardless of state laws, the characteristics of LLCs are the same in most states.

A notable characteristic of an LLC structure is separation between the owner and the LLC. The LLC itself comprises a separate entity, giving each owner personal protection from any liability or debts from the business. An unincorporated partnership does not give partners protection because they are merely doing business as a collection of individuals.

The main difference between a general partnership and an LLC is that an LLC forms a separate entity, but an LLC functions in the same manner as a general partnership. A partnership is defined as a cooperative business agreement undertaken by multiple individuals or parties. Such parties can be:

  • Non-profits
  • Business
  • Individuals
  • Governments

Some partners may share equally in any profits or losses, while others may share more of the burden or profit, depending on the arrangement. The problem is that partners are not protected if they do not file for LLC protections, and they are open to any lawsuits or obligations if a business deal goes sour. This also means that innocent parties within a partnership can be held liable for the wrongdoings of other partners, and an innocent member’s personal and business assets could be subject to seizure if a court levies a judgment against the partnership.

LLC Benefits

As a separate entity, owners can:

  • Commence Lawsuits
  • Retain Attorneys
  • Hire Employees
  • Buy or Sell Property

LLCs mix the characteristics of a partnership or sole proprietorship in the case of single-member LLCs with a corporation. Another LLC feature is the pass-through taxation method. Such a method allows profits and losses to flow from the LLC to individual members, where they file business activity on their personal tax returns. The LLC itself is not taxed, and the only taxes owners pay would be the amount due on their personal taxes.


Corporate shareholders can partake in the growth of a company, and his or her investment is limited to the amount invested in the company, even if the company later faces bankruptcy and has to satisfy lingering debt obligations. On the other hand, LLCs prevent asset seizures to pay any debt obligations. In addition, LLC members cannot be sued for any debts above the amount they invested in the company. With that, members can be held liable if he or she took out a loan within a personal capacity.

Any assets in a company’s possession could be subject to liquidation or seizure. Such assets could include:

  • Real Estate
  • Equipment
  • Machinery

IRS Classification

The IRS does not have a category for LLCs, which is why they are taxed as either sole proprietorship (in the case of single-member LLCS) or partnerships (in the case multi-member LLCs). In regards to corporate entities, LLCs can fall under S or C corp classification. LLCs can choose which corporate tax structure suits them most, or they can remain under the default LLC classification.

LLC Structure

LLC owners are called members, and an LLC structure permits an unlimited number of members. All members have a role to play, as prescribed by the Articles of Organization, which is the document you will file that creates the LLC. Each member is also allowed to participate in the daily operations of the business. Aside from individuals, other entities can own LLCs, such as:

  • Corporations
  • Other LLCs

Each member can manage certain aspects of the business or hire managers to perform such duties. In other cases, an owner may be called to be a managing member and oversee everyday operations.

LLC Obligations

A traditional corporation has many duties to perform. First, a corporation must maintain records of meetings or risk losing its legal standing. With that, LLCs must appoint a registered agent for the organization. A registered accepts any legal or state paperwork for your LLC and forwards the documents to your business. In many cases, the registered agent must maintain a registered office in the state where the LLC was formed.

To learn more about the characteristics of LLC operations, submit your legal inquiry to our marketplace. UpCounsel’s lawyers have graduated from top universities around the nation and will give you better insight into the various aspects of an LLC structure. Moreover, our lawyers will walk you through the LLC creation process and the best management structure that suits you or other members of your intended LLC.