LLC stands for Limited Liability Company and is a fairly recent entity structure. Its creation and operation are governed by state law. The owner of an LLC is referred to as a member and the manager of the LLC is referred to as a manager. The LLC is a hybrid business entity that combines the best qualities of a limited partnership and a corporation. The LLC provides the greatest amount of flexibility in structure and organization.
An LLC requires fewer formalities than a corporation to create and maintain, but it provides the owners with the same level of protection as a corporation.
An LLC can be taxed as a partnership, an S-Corporation, a C-Corporation, or even a sole proprietorship. Most multi-member LLC’s choose to be taxed as a partnership. Virtually all single- member LLC’s are taxed as a sole proprietorship.
Members of an LLC have limited liability without strict formalities. There is no requirement that any one member have unlimited liability, as is the case with a general partner in a partnership.
An LLC offers flexibility in the management of the business. The LLC can be managed by members or managers without the necessity of electing a board of directors and appointing officers, as is required in a corporation. A member can still be a manager without destroying the limited liability they receive under the LLC, unlike in a partnership where a limited partner cannot engage in the day to day business management without being subject to liability.
For small business owners the entity of choice should be an LLC both for its protection and its flexibility.