What Are Limited Liability Companies - LLCs?

A Limited Liability Company (LLC) is a hybrid between a Corporation and a Partnership. An LLC provides the liability protection of a Corporation with the pass-through taxation of a Partnership. Limited Liability Companies are becoming popular due to their flexibility in management and the personal liability protection offered to their members.

While LLCs don’t provide many of the same fringe benefits as a Corporation, the flexibility and simplicity of ownership makes them the ideal tool for a small company looking for liability protection.

The owners of an LLC are called members and they work in a similar capacity as the shareholders of a Corporation. The members buy interest in the LLC with cash, property or the promise of payment.

LLCs have far fewer restrictions on membership than an S-Corporation has on shareholders. LLCs also allow members to participate in management of the LLC without losing their protection from liability, whereas a limited partner in a Limited Partnership does not have this benefit.

Corporations can even be a member or manager of an LLC. This allows greater flexibility than an S-Corporation which places restrictions on the number of shareholders and who can be a shareholder.


LLCs are owned by the Members, similar in scope to shareholders in a Corporation. LLCs can be managed by its members, they may choose to have a professional manager or they can make one of the members a manager. When you form an LLC you will be asked if you want to be “member managed” or “manager managed”. Members can be individuals or other entities, such as a Corporation.


An LLC can be structured to be taxed as either a "pass-through" entity or as an association that pays its own taxes. 

Asset Protection:

Members of an LLC have the same liability protection as shareholders of a Corporation. 

Quick Benefits List:

  • Asset Protection
  • Tax Savings
  • Flexibility of Management


The main disadvantage of LLCs is that their use is relatively new in the United States, so there is no uniformity in the laws that govern them between individual states. 


  • Holding Real Estate
  • Trading Accounts
  • Operating Business

  1. What is an LLC?

    A Limited Liability Company, or LLC for short, is a hybrid business structure that combines the best characteristics of a Corporation with the best characteristics of a Partnership.

    When you form an LLC you have the limited liability aspects of a Corporation combined with the Partnership advantage of pass-through taxation.

    Although the LLC is a fairly new form of doing business in the United States, its flexible structure and simple ownership has made it one of the most popular business structures in use today. The LLC is an ideal tool for owners of small companies who are looking for asset protection, but want less complexity and paperwork when running their business.

  2. When Should I Form a Business Entity?

    If you operate a business, even a home-based or part-time business, or if you are thinking of starting a business, then the time to incorporate is now. Incorporating or forming a Limited Liability Company helps separate your personal liability from your business liability while offering additional tax saving benefits.

  3. How Do I Know If The Name I Want For My Company is Available?

    You can call 1-800-648-0966, and we can run a quick check to see if the name is available. In some cases, if the name is taken, we can help make a few simple changes that will allow it to be filed.

  4. When Should You Not Form an LLC?

    The bottom line is, it is probably easier to outline who should not incorporate than who should. The people who should not incorporate are simply those who do not have a business and are not going into business. They are people who have no assets and have no plan or desire to accumulate assets. Anyone in business, going into business, anyone with valuable assets or working to acquire valuable assets should consider incorporating.

  5. When Do I Know It’s Time To Form A Limited Liability Company?

    If you are starting a business or you’ve been in business for a while, then the time to form a company is now. It doesn’t have to be an LLC, but it should be some type of entity that will provide liability protection. Running your business as a Sole Proprietorship is risky. As a sole proprietor you are taking on the full burden of debt, liability risk and litigation. Our expert staff is here to help. Please give us a call at 1-800-648-0966 and allow us a few minutes of your time to discuss your business plans. We can assist you in outlining some options in choosing the right entity.

  6. How Is An LLC Taxed?

    When an election is not made, the IRS will automatically tax the entity as a Partnership. This means business losses, profits, and expenses will flow through the company to the individual members. If you are switching from a Sole Proprietorship or a Partnership, you are already used to receiving pass-through income, so there would be little change in the way you currently file your taxes.

  7. Is It Better To Choose An S-Corporation Or An LLC?

    This is the question we get asked on a daily basis and one that should not be taken lightly. Both an LLC and S-Corporation offer many advantages in the way of liability protection for their owners, but they also differ greatly in ownership, management and taxing issues.


    S-Corporations are owned by shareholders, while LLCs are owned by members. LLCs have greater flexibility of management and ownership than an S-Corporation. With an LLC, anybody or even another entity can be a member. With an S-Corporation you are limited to 100 shareholders, they all must be a natural person, not another business entity, and they cannot be a foreign citizen.

    Liability Protection:

    LLCs and S-Corporations are similar in the level of liability protection afforded the owners. Distribution of Profits and Losses:

    With an LLC you have flexibility in regard to the distribution of profits and losses, unlike an S-corporation where profits and losses are passed to the individual shareholders based on the number of shares they have in the company.

    Example: Let’s say Susan invests $35,000 into the LLC and Jack only invests $8,000 but does most of the leg work to keep the company going. Because of the split of work vs. investment, Susan and Jack decide that the profits and losses will be distributed 60% vs. 40%. With the LLC they are not limited to just membership interest in determining how the profits and losses will be distributed.

    Taxing Issues:

    Both the LLC and the S-Corporation are taxed as pass-through entities, which means profits and losses pass through to the owners on their personal income tax return. As a member of an LLC, both salaries and profits are subject to self-employment tax which is usually around 15.3%. With an S-Corporation, only the salaries are subject to self-employment tax.

  8. Can I Be A One Member LLC?

    You can be a one member LLC. The biggest disadvantage is you lose the “charging order” protection if you are sued personally, but your personal assets are still protected if your business is sued. So don’t panic and rush out and make your disliked son-in-law a member of your LLC just yet. Remember, anybody can be a member of an LLC, including another entity, so you might want to look at forming another LLC or Corporation to become the second member.

  9. How Is A Limited Liability Company Managed?

    The owners of an LLC are called members and act similarly to the shareholders of a Corporation. Members can be individuals, Corporations, Partnerships, or other business entities.

    The members are distinctly separate from the LLC, meaning they cannot be held personally responsible for the debts of the company.

    An LLC can be member managed or manager managed. Member managed is used when all the members are going to be active participants in the LLC and want to be part of the decision making process. Manager managed could be a member who is elected to manage the LLC or the LLC could choose to hire an outside manager who is not a member of the LLC.

  10. How Is A Limited Liability Company Formed?

    A Limited Liability Company is required to file Articles of Organization with the Secretary of State in the state in which they wish to form. The members are also required to enter into an Operating Agreement. Some states vary slightly from this standard format. Be sure to check with Laughlin before forming your LLC to be sure you’ve met all the requirements.

    Laughlin can assist with the formation of your LLC in any state. It's quick, it's easy and it's affordable. You can also form your LLC on-line in just minutes.

  11. What Are The Disadvantages of a Limited Liability Company?

    The Limited Liability Company (LLC) may have plenty of advantages, but is not without a few disadvantages. Probably the biggest issue faced by LLCs is the fact that they are such a new type of entity. The first LLC statute in the United States was passed in the state of Wyoming in 1976. Nevada passed one in 1991, California in 1995, and the last states, Massachusetts & Hawaii joined the fold in 1997. Because of this, there is simply a lack of case law to determine how LLCs will be treated in certain instances.

    Not all businesses can operate as LLCs. Businesses in the banking, trust and insurance industries are typically prohibited from forming an LLC. Some states have their own restrictions on who can form an LLC. In California, architects, accountants, lawyers, doctors and other licensed healthcare workers are prohibited from forming an LLC.

    Talk to us today at 1-800-648-0966 about whether an LLC is right for you.

  12. Where Should I Form My Limited Liability Company?

    It is not required that you incorporate your business in the state in which it operates. Small businesses just starting out will most likely choose to incorporate in the state in which they transact a majority of their business. Others will choose to take advantage of a preferred state such as Nevada. 

    In deciding which state is best to incorporate in, consider:

    • A particular state's regulatory climate
    • Tax requirements
    • Need for individual privacy
    • The cost of filing fees
    • Statutory law that favors business

    Why would you choose Nevada over just simply forming a Corporation in your home state? Nevada is continually ranked the number one state in which to do business and has some of the most aggressive pro-business laws in the country. Nevada incorporated over 50,000 companies last year, and 60% of those have officers and directors who live outside the state of Nevada. 

    Let's take a closer look at how Nevada encourages economic growth and how you can profit from this environment. 

    • A corporate commission does not regulate Nevada. 
    • There is no requirement to disclose to the state the date appointed for the next annual meeting of stockholders for election of Directors. 
    • You do not have to disclose in your annual report the location of principal places of business  outside of Nevada. 
    • You do not have to report the transference of stock to the state. 
    • The annual filing fee is relatively low. 

    If you want to take advantage of the pro-business state of Nevada, but you transact most of your business in another state, you need to qualify your Nevada company to do business in that state. This usually includes paying a small fee, which to most business owners is small potatoes compared to the benefits you get from forming your Corporation in a preferred jurisdiction.

  13. How to Incorporate?

    1. Choose the type of entity - Call 1-800-648-0966 for a complimentary consultation. 

    2. Choose a name-Laughlin will run an initial name search to make sure it’s available. 

    3. Choose which state - Call 1-800-648-0966 for a complimentary consultation. 

    It is important to work with a trusted company, one that has been in the business for years and understands the importance of doing it right from the start. The biggest mistake you can make is to form a Corporation with a discount broker who is more interested in collecting a fee than assisting their clients to make the right choice. 

    At Laughlin Associates, our number one goal is to make you a client for life, which means we have one chance to do it right. Laughlin has been assisting small closely-held corporate owners to reach their financial goals for over 40 years. The amount of time and money you will spend to clean up a company that was not started properly will cost you more in the long run than going to a reputable company in the beginning, like Laughlin Associates. 

    When you incorporate with Laughlin Associates, our service does not stop there. You will have access to your own highly trained business strategists Monday through Friday, 8:00 a.m.-5:00 p.m. PST, who are available to assist you every step of the way. 

    We love to talk with business owners who are serious about their businesses and excited to take their business to the next level. Feel free to give us a call at 1-800-648-0966, complete our getting started form, or use our Live Chat feature to get immediate assistance online. 

    All that we do is submitted and performed with the understanding that we are not engaged in rendering legal, accounting or other such professional service. If legal advice or other expert assistance is required, the services of a professional should be sought.

Entity Comparison Chart

The following table provides a look at the LLC vs Corporation, and LLC vs S-Corporation. Tax comparisons can be found in the lower portion of the table.


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Type of

Stock, there may be different classes.

Membership interests. There may be different classes of membership. One class of stock. Which may be voting or non-voting.
Eligible Owners No restrictions. No restrictions. 100 shareholder limit. No non-individual and no non-resident alien shareholders.
Management Managed by director(s) and officer(s). Two Management Types
- Managed by Manager
- Managed by Members
Managed by director(s) and officer(s).
Allocations of Ownership None. Dividends must be paid based upon stock ownership. Permitted if the allocations have substantial economic effect. None. Income, gain, and loss pass-through to the shareholders based on the percentage of shares owned.
Liability Protection There is limited liability for shareholders, officers and directors. There is limited liability for members and managers (if applicable) There is limited liability for shareholders, officers and directors.
Duration Perpetual Dissolves at the time specified in the Operating Agreement or upon the loss of a member unless other members agree to continue. Perpetual
Transfer of Ownership Shares freely transferred. There may be restrictions under certain state laws. Shares can be transferred only to eligible S-corporation shareholders

All that we do is submitted and performed with the understanding that we are not engaged in rendering legal, accounting or other such professional service. If legal advice or other expert assistance is required, the services of a professional should be sought.

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