The limited liability company (LLC) first appeared as a business form in Wyoming during the 1970s and became more prevalent during the 1990s. This type of business entity combines aspects of a partnership with aspects of a corporation. Those who form an LLC may choose to have the owners of the company (called “members”) manage the company. This type of management structure is more similar to a partnership. Alternatively, an LLC may choose to have managers run the company in a structure that is more similar to a corporation. The Internal Revenue Service allows an LLC to elect whether it wants to be taxed as a partnership or as a corporation, and so this form of business offers flexibility in both management and taxation.
In order to form an LLC, the owners must file articles of organization with an appropriate state authority, usually the secretary of state. Articles of organization are similar to articles of incorporation, which must be filed in order to form a corporation. Owners of an LLC must also pay a filing fee at the time of registration.
Members of an LLC enjoy similar protections against liability as shareholders in a corporation, limited partners in a limited partnership, or partners in a limited liability partnership or limited liability limited partnership. These members are generally not personally liable for the debts and obligations of the LLC, except in certain circumstances.
Although every state now provides for the LLC as a business entity, state laws vary from one to the next. The NCCUSL completed the Uniform Limited Liability Company Act in 1996, but only eight states and one territory has adopted this act as of 2005.