LLC

A limited liability company (LLC) is a flexible business entity that provides limited liability to its owners while allowing pass-through taxation and managerial flexibility. It is commonly used in the United States and other jurisdictions. An LLC is formed by filing articles of organization with the appropriate authority and by adopting an operating agreement that outlines ownership, management, and procedures. Ownership is divided into membership interests, and members can be individuals, corporations, or other LLCs. An LLC may be managed by its members (member-managed) or by appointed managers (manager-managed).

Liability and tax treatment: Members are generally not personally liable for the debts or liabilities of the LLC, beyond their investment. By default, profits and losses pass through to members and are reported on their personal tax returns, avoiding entity-level tax. The LLC can also elect to be taxed as a C corporation or, where eligible, as an S corporation. The operating agreement can allocate profits and losses in ways that differ from ownership percentages.

Management and compliance: LLCs offer flexible governance with few formal requirements compared with corporations. The operating agreement specifies voting rights, profit allocations, and dissolution procedures. Ongoing obligations vary by jurisdiction but commonly include annual reports and fees, as well as maintaining separate finances to preserve limited liability. Proper governance reduces the risk of piercing the veil.

Variations and context: Some jurisdictions recognize similar entities, such as private limited companies. Compared with corporations, LLCs typically have fewer formalities and greater ownership flexibility, though some states impose annual charges. For businesses operating in multiple states, foreign qualification may be required. Overall, the LLC combines limited liability with tax and management flexibility, making it a popular choice for small and medium-sized enterprises.