Understanding the meaning of LLC in USA is important if you're planning to start a new business. 

What Does LLC Mean for a Company

"LLC" is an acronym that stands for "limited liability company." When you register your company with your local Secretary of State, you'll need to select from a number of available business structures including, but not limited to:  

  • An s-corporation  
  • A c-corporation  
  • An LLC, or limited liability company

Each of these business structures has a number of advantages and disadvantages that you'll want to take into consideration when deciding which one is the right fit for your company. All of the structures listed here are known for providing business owners with a level of separation between their assets and those of the business and its liabilities.

An LLC, however, is the least complex of all business structures you have to choose from. The LLC business structure, unlike the s-corporation or c-corporation, is extremely flexible. In addition, forming your business as a limited liability company provides you with benefits such as:  

  • Pass-through taxes  
  • Limited liability for the company's actions  
  • Protection from the seizure of your personal assets in the event legal action is taken against the company  
  • Increased legitimacy among fellow business owners

The LLC business structure is essentially a mix between the corporation and partnership or sole proprietorship structures. This combination provides the limited liability features of the corporation structure in addition to the pass-through taxation provided by a partnership.

In an effort to set the LLC structure apart from corporations, different terminology is used when defining the structure. For example, owners are referred to as "members" and individuals or entities that are responsible for the company's daily operations, business decisions, and legal obligations are called "managers." 

While corporations have a very strict set of regulations that they must adhere to, an LLC can be much more flexible. For example, in an LLC the members are also able to act as the company's managers. In fact, in an LLC, it's not even necessary to designate specific managers. If you don't, all members are automatically recognized as managers of the company. This can be problematic in larger LLCs, however. In companies with more than two members, it's a good idea to designate specific managers to maintain a level of control and security.

Similar to a corporation, a limited liability company is considered a completely separate legal entity from its owners. In essence, this means that the company can obtain its own tax identification number, open bank accounts, and conduct business under its own name rather than do these things in the name of any of the company's owners.

Important Terminology for LLCs

"Member" is basically just the LLC's word for "owner." Every LLC is required to have at least one member to remain in business. A member can be any of the following:  

  • A resident of the United States  
  • A corporation  
  • Another LLC  
  • A trust  
  • A partnership

A "manager" is a person or legal entity that has been designated by the company's members to handle the daily operation of the LLC. A manager can be any of the following:  

  • A member of the LLC  
  • An outside individual  
  • A corporation  
  • A partnership  
  • Another LLC

Depending on your state, an LLC may not be an incorporated business entity. In these cases, rather than incorporation, you will go through a process known as "formation" in which you file Articles of Formation, which have been signed by the company's organizer and filed with your local Secretary of State.

 The formation of an LLC is based on partnership law. This means, rather than drafting bylaws like a corporation, the members of your company will need to create an "Operating Agreement" to determine how the company will operate. The specific content of this document will depend on you, your company, and the agreed-upon wishes of all of the LLC's members.

"Cancellation" refers to the moment in which an LLC is dissolved. If your company ever goes out of business, you'll need to file a Certificate of Cancellation with your local Secretary of State.

The Flexibility of a Partnership

The main difference between an LLC and a partnership is that the LLC structure is specifically designed to create a measure of separation between the business and its owners. This provides a level of protection for the owners' personal assets when it comes to the company's legal and financial responsibilities.

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