- An LLC provides its members, or owners, with limited liability for the conduct of the LLC. In other words, a member of an LLC can be held liable only for the sum of his assets in the LLC, no matter how much that member is involved in its business operations. This same limitation of liability applies to an LLC's debts and unreasonable business losses. Thus, if A had become a member of the Toshiba LLC by investing $100 in it, he would only be liable for that $100 if Toshiba were sued and forced to pay a judgment. It should be noted that an LLC's limited liability is similar to that of a regular corporation.
- The LLC has a tax advantage over a regular corporation. A corporation is subject to "double" taxation; that is, a corporation is taxed on its income, and then the shareholders in turn are taxed on the same money when it is paid to them in dividends. An LLC member may be taxed for the income he receives from the LLC, but the LLC's own income is not taxed beforehand.
- The laws governing an LLC are sometimes formed by the "Uniform Limited Liability Company Act" (ULLCA). The ULLCA is a compilation of suggested rules on how a state should regulate LLCs. As of 2005 it had been adopted by nine states.
- An LLC allows its members almost completely flexibility in how to operate the business. State laws permit LLC members to decide how the LLC's operations will be conducted by forming an "operating agreement." This agreement is made between the LLC members and binds the LLC to its terms. For example, if the LLC members agree that the LLC's assets can be sold only by a unanimous agreement of the members, then a vote of nine out of 10 LLC members in favor of selling the LLC headquarters will be insufficient to approve the transaction.
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Although an LLC can provide its members with limited liability, there are circumstances in which LLC members can be held personally liable for the conduct of the business. Under the doctrine of "piercing the corporate veil," a shareholder of a corporation may be personally liable for the corporation's conduct when the corporation has insufficient capital to conduct its operations or there is failure to observe the "corporate formalities." In most states, if the corporation has been inadequately funded, the corporate veil is pierced only in cases of fraud or wrongdoing by the shareholder.
Some state laws extend the doctrine of "piercing the corporate veil" to LLCs and hold that an LLC member may be held liable for the conduct of the business under the same circumstances that the shareholder of a corporation may be held liable for the corporation's conduct.
