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An Explanation of LLC (Limited Liability Company)

Madhavi Ghare
What is an LLC or a Limited Liability Company? Read on for a brief explanation of LLC.
In legal terms, a 'company' is treated as an individual entity - separate from its shareholders. That is why a company pays its own taxes, maintains its own accounts etc. The shareholders of a company are merely owners of small or large bits of the company. That is why they are considered separate from the company.
A Limited Liability Company or LLC is a legally formed company which has a limited liability for the owners.
The term 'Limited Liability' means that the member or shareholder's financial liability is limited to the amount of his investment in the company. Thus, he is not personally liable for the debts of the company. The only amount that he is liable to pay is the amount he has invested in the company i.e., the amount for the shares he is holding.
An LLC with several members is considered as a Partnership for the purposes of taxation by the Government. This ensures that double taxation is avoided.

If there is an LLC with just one member, the Government will treat it as a Sole Proprietorship Company and will be taxed accordingly.

An LLC can have an unlimited number of members.
An LLC has a lot of flexibility in terms of management. The owners of an LLC need not be U.S. Citizens or permanent residents. The owners can manage the company themselves, or hire someone to do the job. However, an LLC does need an Operating Agreement to clarify how and by whom the company will be managed.
In effect, this form of company is a combination of a corporation and a partnership. It gives the shareholders a tax advantage, and provides them with flexibility in creating a management hierarchy for business purposes. At the same time, their liability is limited. This also ensures that the risk of each shareholder is limited.
This type of company is prevalent in almost all parts of the world. Most organizations opt for this company type to ensure that their personal financial position is not threatened or imposed upon for the purposes of the company.
When the shares of a company are partly paid, even then the shareholders are liable for the entire value of the share.

An LLC need not hold Annual General Meetings and keep a record of its Minutes.
Overall, an LLC or a Limited Liability Company is a limited risk and extremely flexible, functional company structure.