Limited Liability Companies

The limited liability company (LLC) offers some advantages of both corporations and partnerships. As in a corporation, the owners' liability is limited. As in a partnership, the company itself is not subject to federal income tax. The IRS has ruled that a limited liability company is taxed as a partnership if two or more of the following corporate characteristics are missing:

• Limited liability
• Centralized management
• Continuity of life
• Free transferability of interests

As with a partnership, the rights and obligations of the LLC owners are detailed in a written agreement. The LLC is a separate entity under state law and must file Articles of Organization with the Secretary of State.

The limited liability company is a relatively new form of business entity. Although LLC status is recognized in most states, the laws are new and untested. However, due to the hybrid nature of this type of company, its use is quickly growing.