A limited liability company is a midpoint between a corporation and a partnership. It offers several advantages over more common business models.
- Limited liability is the most important reason to use a limited liability company. Members of a limited liability company are not considered personally responsible for any financial liabilities that the company may incur beyond the value of their investment in the company. This provides a degree of freedom from risk.
- In a limited liability company, instead of shareholders like in a standard corporation, the owners are called members. The rights and duties of members are often defined by an operating agreement.
- Because limited liability companies have a slightly ambiguous status, the members can decide how they want the company to be taxed.
- Some states and countries have passed laws that adversely affect LLCs for tax reasons. For example, in the United States no payments by an LLC to buy out a member can be counted as deductibles for federal tax purposes.
- Different countries and states have different laws governing limited liability companies. Some countries charge LLCs extra fees.
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