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This article is about a U.S.-specific corporate form; for a general discussion of entities with limited liability, see Corporation . A limited liability company (denoted by '''L.L.C.''' or '''LLC''') in the law of many of the United States is a legal form of business Company offering Limited Liability to its owners. It is similar to a Corporation , and is often a more flexible form of Ownership , especially suitable for smaller companies with a limited number of owners. Unlike a regular corporation, a limited liability company with one member may be treated as a disregarded entity, so the member is often singled-out as a person performing the actions of the LLC. A limited liability company with multiple members may choose, generally at the time that the new entity applies for a US federal taxpayer ID number, to be treated for U.S. Federal Taxation purposes as a Partnership , as a C Corporation , or as an S Corporation . An LLC can elect to be either "member managed" or "manager managed." MANAGEMENT STRUCTURES Choosing to operate by member management creates a flat member or partnership structure. Choosing manager management creates a two-tiered management structure potentially convertible into a corporation, with the attendant tax consequences. LLCs use IRS Form 1065 (if taxed as a partnership) and Schedule SE (Self-Employment Tax). It is often incorrectly called a "limited liability corporation" (instead of company). LLCs are organized with a document called the "articles of organization", or "the rules of organization" specified publicly by the state; additionally, it is common to have an " Operating Agreement " privately specified by the members. The operating agreement is a contract among the members of an LLC governing the membership, management, operation and distribution of income of the company. Managing members are the individuals who are responsible for the maintenance, administration and management of the affairs of a LLC. In most states, the managers serve a particular term and report to and serve at the discretion of the members. Specific duties of the managers may be detailed in the articles of organization or the operating agreement of the LLC. In some states, the members of an LLC may also serve as the managers. Members are the owner(s) of a LLC. Unless the articles of organization or operating agreement provide otherwise, management of an LLC is vested in the members in proportion to their ownership interest in the company. Operating as an LLC form of partnership does not mean that appropriate US federal partnership tax forms are not necessary, or not complex. As a partnership, the entity's income and deductions attributed to each member are reported on that owner's tax return. LLCs can lose their tax advantage without the partnership structure. The possible label "disregarded entity" for income tax purposes singles out the one-member owner of an LLC as actually earning income and deductions directly. It is the owner, then, who reports as a business proprietor, rather than as an LLC operating an active trade or business. An LLC passively investing in real estate and owned by a single member would have its income and deductions reported directly on the owner's individual tax return on a Schedule E tax form. And an LLC owned by a corporation--in other words, an LLC with a single corporate member--would be treated as an incorporated branch and have its income and deductions reported on the corporate tax return, creating double taxation. ADVANTAGES
DISADVANTAGES
VARIATIONS
HISTORY BY COUNTRY Companies with limited liability exist in business law world-wide, however the Limited Liability Company is a specific legal structure defined by the laws of states of the United States and with quite different characteristics. Few other countries have similar structures. United States LLCs were first enacted by the state of Wyoming but can now be created under the laws of any U.S. state. They were chiefly inspired by the GmbH , a type of business organization in Germany , and by ''limitadas'', a type of business organization available in many Latin America n countries. United Kingdom There is no corporate structure in the . Japan Japan passed legislation in 2006 creating a new type of business organization, Godo Kaisha , a close variant of the American LLC. NAMES AND ABBREVIATIONS Most states require that the company name contain one of the following terms, with some variation by state:
Limited liability companies may not use the following terms on their own:
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