Business Glossary

business form that provides limited personal liability, as a corporation does. Owners, who are called members, can be other corporations. The members run the company unless they hire an outside management group. The LLC can choose whether to be taxed as a regular corporation or as a pass through to members. Profits and losses can be split among members any way they choose. The LLC rules vary by state.

type of business organization, recognized as a legal form of business in most states, combining features of a corporation and a partnership agreement An LLC provides its organizers with liability protection from claims and lawsuits similar to a corporation. It is treated as a partnership for tax purposes; earned income passes through the LLC to its owners, who are taxed as individuals.

company in which shareholders limit their liability exposure to their percentage of ownership or equity interest in the company. Shareholders' personal assets are protected in the event of business-related lawsuits. The tax situation for this type of company is much like that of the partnership in that it acts as a pass-through tax entity. A tax return for a partnership is filed with the IRS for information purposes only. All income and expenses are attributed to the stockholders of the LLC. According to the LLC agreement, the stockholders can allocate income and its resultant tax liability the same way as partners in a partnership.

The LLC has advantages over the subchapter "S" corporation to include the following: (1) LLC has no restriction on number of persons who may be stockholders; "S" corporations are limited to 35 stockholders; (2) LLC may have multiple classes of stock; an "S" corporation can have only one issue of stock; and (3) LLC may own subsidiaries; an "S" corporation cannot own subsidiaries.

organization form in some states that may be treated as a partnership for federal tax purposes and has limited liability protection for the owners at the state level.The entity may be subject to the state franchise tax as a corporation . The two forms available in most states are Limited Liability Corporations (LLCs) and Limited Liability Partnerships (LLPs), in which the individual partners are protected from the liabilities of the other partners. These entities are considered partnerships for both federal and state tax purposes.

organization form recognized in many states that may be treated as a partnership for federal tax purposes and has limited liability protection for the owners at the state level. The entity may be subject to the state franchise tax as a corporation . Many states also recognize limited partnerships , in which the individual partners are protected from the liabilities of the other partners. These entities are considered partnerships for both federal and state tax purposes.

Example: A limited liability company may be an excellent way to own real estate because it may provide many of the legal advantages of a corporation and the tax advantages of a partnership . States may impose restrictions, for example by limiting the number of owners.