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Part Two: What is the difference between a partnership, LLC, and corporation?

On Behalf of | Dec 3, 2014 | Business Law |

In Part 2 of this week’s blog series discussing the differences between business entity structures, we will be examining one of the most popular forms of business entities – a limited liability company.

Limited Liability Company (LLC): A limited liability company in California is governed by the Revised Uniform Limited Liability Company Act. LLCs may be either manager-managed or member-managed as set forth in the company’s articles of organization and operating agreement. Essentially, a manager is a person that, pursuant to the operating agreement, is responsible alone, or in combination with the members, for performing the management functions of the company. The company’s operating agreement will set forth the roles and responsibilities of the manager and the members. A member-managed LLC will be vest the management and control of the entity with the members of the company. A member, for intents and purposes, is an equivalent to a shareholder in a corporation in that the members hold membership interests in the limited liability company.

In recent years, LLCs have become one of the most popular business structures. LLCs provide protection for its members insofar as no member of an LLC is personally liable for any debt, obligation, or liability of the entity. A limited liability company is also considered more flexible and less formal due to the fact that many corporate formalities are not required by statute. Lastly, LLCs are classified as a partnership for federal income tax purposes which means that there is no entity level taxation and all income to passed-through to the members of the company (although LLCs can elect to be taxed at the entity level). Thus, an LLC is able to avoid double-taxation (taxed at the entity level and taxed at the individual level) and receives other tax-related benefits that corporations are not able to enjoy.

If you have any questions about your LLC or questions regarding the formation of a limited liability company, contact the business formation attorneys at The Loftin Firm.