Understanding LLC terms makes it easier to set up the limited liability company structure, which is a hybrid of the corporation and partnership business entities. It is a popular option for business owners who want to take advantage of the benefits of both formations.

What Is an LLC?

Business owners can form LLCs in most states, combining benefits such as pass-through taxation and limited personal liability. These were previously only available through the formation of an S corporation. On the legal side, LLC formation is less complex than that of a corporation. Therefore, business owners that don't want the restrictions of an S corporation can form an LLC to get many of the same benefits. Limited liability companies are easier to set up and manage than corporations, so many small business owners are opting for this business formation.

The first LLC was formed in 1977 in Wyoming, so it's a fairly new structure. Many of the other states didn't follow in Wyoming's tracks until the 1990s. Thus, the laws around this formation are relatively new and haven't been well-interpreted in court cases. States also have their own statutes that govern and regulate LLCs, which vary between states. Laws that are still being modified and adapted can be difficult for business owners operating in multiple states to learn and keep up with.

Any business owner who is considering forming an LLC should consult with tax and legal advisors who are knowledgeable and up-to-date with the latest laws and rules.

Naming an LLC

Before you can form an LLC, you must reserve the name you want for the company with the local government agency, which is often the Secretary of State's office. You must also follow these naming rules:

  • In many states, you must include the phrase “limited liability company” or its abbreviation, LLC, within the name of your business. 
  • Other states might prefer the use of “limited company” or the abbreviation LC. 
  • In every state, a rule exists restricting LLC names from being too similar to other businesses registered in the state. This applies to most business formations, including other LLCs, partnerships, corporations, and sole proprietorships.

Common LLC Terms


In an LLC, a member is someone who owns at least some interest in the business. A member or members also manage the LLC's operations, unless otherwise specified in the company's articles of organization. A membership certificate is a document that outlines each member's ownership interest.

Managing Member

A managing member of an LLC is the person who runs the business and oversees its operations. Not all LLCs have a managing member, but when all members don't want to be responsible, they can collectively designate one to manage the business.


An LLC's manager is someone who has been chosen by the members to run the company. Members can choose to elect a manager if they want someone who isn't a member to run the business operations.

Registered Agent and Registered Office

A registered agent is a person who has been designated by the LLC to accept any legal documents on behalf of the company. The registered agent must be available on a regular basis at the address provided by the LLC when it registered with the state. This address can be the main business office or another address where the registered agent is available, so long as it is within the state where the LLC operates. An LLC's registered agent is responsible for receiving any legal and court documents and forwarding them to the LLC members.

The Articles of Organization

The articles of organization, also called the certificate of formation, is a document that must be completed by the LLC member(s) and filed with the Secretary of State's office. Each state also requires the LLC to pay a filing fee when submitting this document, although the fee varies between states. 

This document must include some basic information about the business, including:

  • Company name.
  • Business address.
  • The registered agent's name and address.
  • A basic description of the type of business the company will conduct.
  • Name(s) of company member(s).
  • Name(s) of company manager(s), if applicable.
  • Date of dissolution (if applicable).

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