Klein & Wilson

What is a limited liability company?

There is not just one type of business entity here in California. Rather, businesses have a variety of different entity types they can choose from when forming. One such entity type is the limited liability company (LLC).

Structurally, an LLC is somewhere in between a partnership and a corporation. This business entity type allows for the flexibility of partnerships, while providing owners of the business with some of the protections enjoyed by shareholders of corporations, such as liability protection. Owners of an LLC are called members. An LLC is a separate legal entity from its members.

There are lots of choices individuals have when forming an LLC, as LLCs are very flexible business entities that can be structured in many different ways.

For example, the ability to bind the business doesn't reside in the same place for all LLCs. In some LLCs, members hold the ability to bind. In others, the ability to bind rests with non-managing members. Where ability to bind rests depends on what is specified in the LLC's articles.

LLCs can also vary from one another in how they are taxed in the state. Some LLCs are taxed as partnerships, while others are taxed as corporations. Here in California, the default tax treatment for an LLC with at least two members is partnership taxation, with the LLC having the option to elect to be put under corporation taxation instead.

How an LLC operates is dictated by the terms of its operating agreement. There are many different kinds of terms operating agreements can contain. This fact is another source of the great degree of variation between different LLCs.

As one can see, there are quite a few things that make LLCs unique as business entities. Given these unique aspects, disputes among members of LLCs can raise their own special sets of issues as compared to disputes in other business entities. Thus, when a member of an LLC is in a dispute with their fellow members, having the advice of a lawyer knowledgeable in the specifics and unique legal aspects of LLCs can be helpful.  

Source: Governor's Office of Business and Economic Development, "Limited Liability Company (LLC)," Accessed Dec. 9, 2015

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