Limited Liability Company Basics

A business can be defined as an entity organized for the purpose of conducting commercial, industrial, or financial activities. Companies can either be private for-profit entities or governmental non-profit organizations which operate to meet a social cause or further a religious mission. In business terms, a business can also be an individual or group who sells, manufactures, distributes, exchanges, or serves services. In any case, a business is a succession of actions governed by considerations such as objectives, resources, risks, and rewards.

There are three basic classifications of business: sole proprietorship, partnership, and corporation. A sole proprietorship is an entity in which there is no single partner acting as the sole proprietor. Partnerships are formed by more than one partner and these entities are considered joint-venturers. A corporation is created by a board of directors and control is vested in a board of officers. The most common structure for a business organization is a partnership where one partner acts as the principal and the other partner or members act as agents.

A limited liability company (LLC) resembles a partnership in that it carries on business activities only in accordance with the provisions of a contract between the partnership and the entity carrying on the business. It differs from a corporation in that it does not have the double taxation status of a corporation. The liability of the partners in the business entity is reduced because it is regarded as a partnership rather than a corporation and share capital is retained by the partners. Like all businesses, there are also benefits and drawbacks that should be weighed in considering whether to form an LLC or not.