The LLC is a hybrid entity that is generally taxed as a partnership while providing limited liability protection for all of its members.
A limited liability company (“LLC”) is a relatively new entity and a very popular form for doing business. Like the shareholders of a corporation or the limited partners in a partnership, all members of an LLC have their liability for debts and claims against the LLC limited to the extent of the capital they have agreed to contribute.
Members enjoy the ability to freely transfer their interests (subject to any restrictions set forth in the operating agreement and state and federal securities laws). As with a partnership, the tax consequences of a limited liability company may be passed through to the members, thereby avoiding double taxation of the LLC’s income. In addition, special allocation of taxable items among members is permitted.
LLCs provide for management by either their members “member managed” or by one or more designated managers “manager managed” who are usually not required to be members of the LLC. The members and manager(s) of the LLC will typically enter into an operating agreement that sets forth the rights, preferences, and privileges of the members and the duties and obligations of the manager(s), similar to a partnership agreement.