What is a LLC (Limited Liability Company)?

by Investing School on April 9, 2010

An LLC or limited liability company or a company with limited liability is a business that provides limited liability to its owners. It is often mistakenly called a “limited liability corporation” but it is, in fact, a limited liability company. This type of company has the characteristics of a corporation, partnership or sole proprietorship.

An LLC is a business entity but it is also an unincorporated association and is therefore, technically not a corporation. The main characteristic of this type of business entity is that it shares also with a corporation is the concept of limited liability. And, the trait that it shares with a partnership is that of pass-through income taxation.

It is important to note that having limited liability does not mean that owners in the company are immune to personal liabilities. There are many cases where courts have been able to penetrate LLCs when a case of fraud or some other type of misrepresentation has taken place.

The members of the LLC are the owners of the LLC just as much as any of the shareholders are owners in a corporation. And, like shareholders, a person that is a member of the LLC is liable to repay debts and obligations related to the business in proportion that what his or her capital contribution is.

The membership ownership interest in an LLC is most often called a membership interest. Membership interests are divided into units which are often called shares. Membership interests along with member rights are subject to regulation by state law.

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