Characteristics
The LLC business form has characteristics of both a corporation and a partnership. Sometimes referred to as a "hybrid" form of business, LLCs can be simpler to maintain than subchapter S or C corporations, requiring fewer formalities, and provide greater flexibility in the number and relationship of participants. Though rules vary by state, typical characteristics include:
- LLCs must have two or more "members" at the time of formation and at all times thereafter.
- Members are generally not personally liable for an LLC's debts, obligations, and liabilities and members can participate in management and control of the LLC without increasing their personal exposure beyond their contribution to the business.
- Like corporations, LLCs are created by filing a certificate of organization with the appropriate state department and paying a fee.
- Once created, LLCs function in accordance with the terms of the operating agreement, a document comparable to a partnership agreement. LLCs must also file an annual report with the appropriate state department, typically, the Secretary of State.
Limited liability is available for the members, similar to that provided to corporate shareholders. The basis of the member's interest includes the member's share of the LLC's debt.
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