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LSDefine
Simple English definitions for legal terms
LLC
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A quick definition of LLC:
A Limited Liability Company (LLC) is a type of business that combines features of partnerships and corporations. It allows flexibility in how the business is organized and how profits are shared among its owners, who are called members. An LLC can choose to be taxed like a partnership or a corporation. The members of an LLC have limited personal liability for the business, meaning their personal assets are protected if the business is sued or goes into debt. To form an LLC, it must be registered with the state and have a certificate of organization. The rules for running an LLC are usually outlined in an operating agreement. However, if an LLC is used to deceive creditors or is not run as a separate entity from its owners, the courts may hold the owners personally responsible for the business's debts and obligations.
A more thorough explanation:
Definition: Limited Liability Company (LLC) is a type of business organization that combines features of partnerships and corporations. It offers flexibility in structuring the business to meet the specific needs of its investors. An LLC can have members who each own and control equal parts of the business, or it can be managed by some members with different control and profit allocations among all the members. An LLC can also choose to be taxed like a partnership or a corporation. The investors in an LLC have limited personal liability in the business.
For example, let's say that John and Jane want to start a business together. They decide to form an LLC so that they can share ownership and control of the business equally. They also want to limit their personal liability in case the business incurs debts or legal issues. By forming an LLC, John and Jane can achieve these goals.
LLCs must register with the state and create certificates of organization. The structure and management of the LLC are typically outlined in an operating agreement. Compared to corporations, LLCs have fewer guidelines and procedures for investors to follow. However, courts may "pierce the corporate veil" and hold investors personally liable if the LLC is used to defraud creditors or if it operates as an extension of an investor rather than a separate entity.
Example: Sarah and Tom want to start a small business selling handmade crafts. They decide to form an LLC so that they can share ownership and control of the business equally. They also want to protect their personal assets in case the business is sued or incurs debts. By forming an LLC, Sarah and Tom can achieve these goals while still having flexibility in how they structure and manage the business.
This example illustrates how an LLC can be used by small business owners to protect their personal assets while still having control over the business. It also shows how an LLC can be tailored to meet the specific needs of its investors.