What Is a LLC Corporation: Everything You Need to Know
Understanding what is a LLC corporation is an important step in creating your new business.3 min read
2. Business Structure and Management for Your LLC
3. Types of LLCs
Understanding what is a LLC corporation is an important step in creating your new business. Before you start filing your incorporation paperwork with local state agencies, you're going to need to choose between a number of available business structures for your company. Some of these options include:
- Limited Liability Company
The most common choice for small business owners is to incorporate as a Limited Liability Company, otherwise known as an LLC.
What Is a Limited Liability Company (LLC)?
Limited Liability Companies are also sometimes referred to as "Limited Liability Corporation." This is a business structure that is generally recognized in every state in the United States. A Limited Liability Company, simply put, is a combination of the sole-proprietorship and corporation business structures in terms of benefits. This structure makes filing tax returns easy for the owner, similar to a sole-proprietorship or a partnership. LLCs also offer a measure of liability protection for owners, similar to the protections available in a cooperation.
Forming your business as a Limited Liability Company means your business will take on its own legal identity, with its own separate financial and legal obligations. In a Limited Liability Company business structure, however, the company's finances are still tied to your own personal taxes.
In simple terms, the Limited Liability Company business structure is less complex than most other options. The LLC structure is also quite flexible, unlike the S corporation and C corporation structures.
Business Structure and Management for Your LLC
In a Limited Liability Company, owners are referred to as "members." This is similar to the way owners are called "partners" in the partnership business structure. Limited Liabilities are less formal than corporations in terms of business and management structures. For example, management rights and responsibilities are generally spread across all members of an LLC. These managing members have complete authority over the business, and they are responsible for every aspect of the company.
Unlike a corporation, which requires directors, officers, and shareholders, there are no specifically defined positions in a Limited Liability Company. A member can act in all these capacities simultaneously. A member can act in all these capacities simultaneously. However, if the members of an LLC choose, they may adopt these titles within the organization and agree to divide specific responsibilities among multiple members. This is not a requirement of the LLC structure, however, and each member ultimately has complete control of the company.
Ownership in a Limited Liability Company is usually divided into percentages, rather than being represented as stock shares like a corporation. For example, if the company has two members, each member may have 50 percent ownership in the company, providing them with equally distributed ownership rights. If, however, one owner claims 60 percent and the other only has 40 percent ownership, the majority owner has the ultimate authority in the company.
Types of LLCs
There are a number of different specific forms your LLC might take, depending on your exact situation. Some of these variations include:
- Domestic LLC
- Foreign LLC
- Member-managed LLC
- Manager-managed LLC
- Single-member LLC
- Multiple-member LLC
Your business may take on one or more of these variations.
If you form and operate your company in your own state, it will be considered a domestic LLC. A foreign LLC is formed when you intend to do business in a state other than your original state of incorporation. If you're operating a business in Georgia but you originally incorporated in North Carolina, for example, your company will be considered a foreign LLC in the state of Georgia.
In a member-managed LLC, the owners of the company are personally involved in the daily operation of the business. A manager-managed LLC, however, means that some or all the company's members are uninvolved in daily business activities. In this case, an outside professional is usually hired to act as the company's manager. Alternatively, certain members may be designated as managers while the others act as silent investors.
A single-member LLC, as its name suggests, is formed when the company has only one owner. If the company has more than one owner, it is a multiple-member LLC.
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