LIMITED LIABILITY COMPANY

A limited liability company is very similar in structure to a corporation, except that the number of owners such a company may have is limited -- hence the name. In the United States, a limited liability company is often referred to as an LLC -- many people incorrectly interpret this acronym to mean limited liability corporation. In the United Kingdom, a limited liability company is marked as Limited or Ltd., in contrast to public companies, which are referred to as PLC.

The limited liability company is a relatively new innovation in the United States, intended as a way to help small businesses gain many of the benefits enjoyed by corporations, while allowing them to retain their small business model of ownership.

A traditional corporation requires a number of things that a limited liability company does not need to create. Corporations have shareholders, for example, and must meet a certain number of times per year at shareholder meetings to make decisions. A limited liability company does not have shareholders and does not require meetings. Similarly, a limited liability company does not need to create a set of bylaws, though some states require an operating agreement in order to recognize the company.

The limited liability company model is widely considered to be an alternative to remaining as a sole proprietorship. For small businesses which are owned by one person, the tax benefits of being a sole proprietorship outweigh the liability-reducing benefits of incorporation. By becoming a limited liability company, however, these small businesses retain many of the perks of being unincorporated, while reducing their liability. A limited liability company may in fact choose its own tax status, deciding whether to be treated as a sole proprietorship, or an S or C corporation.