LLC (LIMITED LIABILITY COMPANY)

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Common questions

What is a limited liability company?

A limited liability company, or LLC, is a business entity created under state law that combines characteristics of both a corporation and a partnership. Like a corporation, the owners of an LLC are generally not personally liable for company debts. Like a sole proprietorship or a partnership, an LLC has operating flexibility and is, by default, a "pass through" entity for tax purposes. This means that the LLC does not pay taxes on its profits, but instead, profits and losses are "passed through" to the owners, who must then pay tax on their share of the LLC income.

What are the main differences between an LLC and S corporation?

Although an S corporation shares many of the same tax characteristics as an LLC, an LLC has more flexibility and fewer restrictions on ownership than does an S corporation. An S corporation must not have more than 100 shareholders, all of whom must be U.S. citizens or legal residents. An S corporation is also subject to more formalities, such as holding annual meetings and keeping corporate minutes.

On the other hand, LLCs generally are not required to hold formal meetings, but an LLC owner may be subject to higher self-employment taxes than a comparable S corporation owner. That is because an S corporation owner is required to pay self-employment tax only on salary, but not on dividends from the corporation.

Does an LLC need to hold formal meetings?

The answer is usually no, unless the LLC's operating agreement requires meetings. The LegalZoom Operating Agreement make meetings optional. This is one of the key advantages of an LLC - fewer formalities. This means less paperwork and less chance that the members will accidentally violate the law and possibly lose their liability protection.

The LegalZoom advantage

Sample document

View a sample LLC document

Your final forms, documents and filings may differ depending on your state.

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