Limited Liability Company
The Limited Liability Company website defines an LLC as "a relatively new business entity, at least in the United States. Its basic features are that its owners have limited liability for the entity's debts and obligations, similar to the status of shareholders in a corporation, and its income and losses are normally passed through to the owners as if it were a partnership. It is probably most like a limited partnership, without the requirement that there be at least one general partner liable for the debts and obligations of the partnership." Until 1997, only a small number of states recognized a Limited Liability Company.
Limited Liability Companies are most frequently used by professionals such as attorney's, doctor's or others who wish to enjoy the benefits of an LLC including limited liability, pass through income and not have to meet the more stringent requirements of a partnership agreement. LLCs require specific documents to be formed, with each "partner" agreeing ahead of time what the disposition of their share of the corporation will be in the event that they resign or are deceased.
Like closed corporations, LLCs are not generally held in a manner that allows anyone to invest in the corporation. Similar to an S Corporation, income passes through and is not subjected to corporate taxation. LLCs may be formed by a single person, by multiple persons and may also be held in what is commonly called "cells" where the LLC has offices in more than one state.
The Internal Revenue Service states "LLCs can only be classified as a corporation, partnership or sole proprietorship". Form 8832 must be filed with the Internal Revenue Service in order for the organization to be properly classified for tax purposes.
A Limited Liability Company does offer owners limited liability when it comes to corporate debt, unless personal guarantees are signed.
So, when considering what is a corporation--these are the three basic types of corporations that may be formed to allow a business to take advantage of tax breaks, legal protections and to protect intellectual property rights. There are other types of companies including Sole Proprietorships, DBA (doing business as), and Partnerships. Business owners must evaluate each type of business structure carefully and determine what protections best suit their individual needs. Not all corporate structures are right for all types of businesses.