Why You Need a Limited Liability Company

by Abraham Robinson

Overview

A limited liability company is a midpoint between a corporation and a partnership. It offers several advantages over more common business models.
Limited Liability

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.

Terminology

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.
Advantages

Because limited liability companies have a slightly ambiguous status, the members can decide how they want the company to be taxed.
Disadvantages

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.
Variation

Different countries and states have different laws governing limited liability companies. Some countries charge LLCs extra fees.