A limited liability company, or "LLC", is an unincorporated
business entity which is a cross between a corporation and
a partnership. Like a corporation, an LLC protects its members
from personal liability for the debts and obligations of
the company. Like a partnership, an LLC is typically formed
by the filing of a "certificate of formation"
or similar certificate with the Secretary of State and is
taxed like a partnership. Also like a partnership, the members
of LLCs typically enter into an operating agreement which
establishes how the LLC is managed. This agreement controls
the management of the company and how the members relate
to each other.
Where S Corporations have limits on the number of shareholders
who also must be US residents, LLCs have no restrictions
in these regards. This makes the LLC a particularly suitable
vehicle for non-US residents (See Company Formation for
US Non-residents.) An LLC can have more flexibility in management
because this is controlled by the members agreement not
by the Business Corporation Act of the state.
Unless the LLC elects to be taxed as a corporation, it
will be taxed as a partnership - income and deductions of
the LLC will be passed through to members for inclusion
in their personal returns.
If one or more of the owners are non-US citizens, if you
have a non-traditional management structure and so need
more flexibility than the standard Officers and Directors
arrangement of corporations governed by the state's Business
Corporation Act, then an LLC may be for you. If tax considerations
are a driving factor, you can achieve the same pass-through
taxation by electing S Corporation status as a corporation.