Limited liability companies (LLC) offer a unique hybrid model that combines the advantages of a limited company with the tax conditions of a partnership.
This model is most prevalent in the U.S., where it is permissible by federal statute, although each state may dictate different regulations regarding the establishment and management of each specific legal entity. The LLC concept is also accepted in the Isle of Man and several other countries.
LLC companies do not have share capital in the same sense as LTDs (limited companies) do. In an LLC the company capital is comprised of units and its owners are called “members” (not “shareholders”). Most U.S. states do not impose any restrictions regarding ownership of the company, so that owners may be individuals, companies, LLCs or other legal entities. In most cases the number of members is also unrestricted, and most states also allow single-member LLCs (meaning a single individual as sole owner). This model has no required board of directors and its office holders are simply called “managers”.
Some businesses are not permitted to incorporate as LLCs – among them banks and insurance companies.
In the U.S., the main advantage of establishing an LLC is the right of owners to determine its own tax classification – whether as a separate source of company income, as a partnership or as part of general company turnover. In fact, the tax authorities will treat the income of a single-member LLC as an entity disregarded as separate from its owner for income tax purposes (a “disregarded entity”), unless he/she specifically requests to be treated as a corporation.
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