Legal

A company authorized by state statute that is characterized by limited liability, management by members or managers, and limitations on ownership transfer.

English

The Limited Liability Company (or LLC) is a hybrid entity. It combines the limited liability of the corporate structure with the benefits of being treated as a partnership. The LLC has come to be the most common entity selection among startups, small or large, because of its simplicity and its flexibility. LLC’s are, by default, treated as a partnership, which is simpler than the other entities that are designed to offer partnership-like treatment. LLCs do not have the restrictions traditionally placed on other entities with this type of favorable tax treatment. This allows the LLC to be functionally whatever it needs to be. The LLC, like the partnership, is a creature of contract. That means, it can do what it needs to do.

Being a hybrid, an LLC may change with your business. Often, startups bootstrap until they are in a position to raise capital. With the LLC, the adjustment is simply to check the box to receive more favorable taxation when the time is right. With an LLC, business owners can issue multiple classes of equity and avoid the limitations placed on other types of entities.

The LLC can be  managed by its members, a manager, or group of managers.

The LLC can be deceivingly simple as the LLC is such a relatively new concept and it is governed by state law without the benefit of a unified set of laws that govern them. The LLC is still young as an entity. Legislatures are still making adjustments to the laws governing LLCs. Also, large investors do not typically like the LLC because of some of these issues, but that is resolved by checking the box as discussed above. LLC members cannot typically be on payroll, which means that the salaries of the members cannot be written off as an expense in the company.