LLC Rules


LLC stands for limited liability company, and is similar to a corporation in that the owners' personal assets are protected from being used in case of business debt that cannot be repaid. An LLC is a separate legal entity from its owners.


LLCs do not have shareholders. Instead, the owners are individuals or other companies that are involved in the LLC from the beginning, or buy another owner's portion of the LLC. The owners of an LLC are referred to as members, and they do not have to be United States citizens.

Corporation Characteristics

There are four characteristics associated with corporations. These are limited liability for owners; continuing the LLC beyond the lifespan specified when the LLC was started (called continuity of life); not having all members participate in management (called centralized management); and selling a person's part of the company to someone outside of the company (called free transferability of ownership interests). An LLC can have no more than two of these characteristics.

Corporate Formalities

Unlike a corporation, an LLC does not have to arrange an annual meeting and keep minutes at that meeting. An LLC does not sell stock certificates, and does not have to elect a board of directors. These things are called corporate formalities, and are all activities corporations must engage in.

Registering the Business

To start up an LLC, you must register the LLC with the state office that handles the registration of corporations (sole proprietorships and partnerships do not have to). Check with the state office to find out the exact procedure you need to fulfill; requirements vary by state. At the time of the registration, you and the other members will choose to length of time the LLC will remain in operation.


An LLC can choose how to be taxed through the IRS. Most choose to be taxed as a sole proprietorship or partnership, but an LLC can also be taxed as a corporation. This depends all on the members' needs and what is best for them and the business. However, if your LLC exhibits more than two of the four characteristics associated with corporations, you must file taxes as a corporation. Unlike a corporation, the LLC's owners do not have to file a tax return for the company. Profits and losses can be recorded on individual tax returns.

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