“LLC” stands for “limited liability company,” and “LC” stands for “limited company.”  They are basically the same thing, but different states call them different names.  We will refer to both entities as an “LLC” in this article.  LLC’s can be member-owned, which means the owners are passive members and hire separate, salaried management; or member-managed, which means the members manage the business, as well as own it.

An LLC is essentially a hybrid corporation and partnership.  Almost every state has adopted some version of an LLC, and it provides all the benefits of a partnership with the limited liability, taxation benefits and stock transferability of an S corporation.  Nonresident aliens can be shareholders, and members can manage their business without risking personal liability.  Thus, to summarize, an LLC has all the benefits of an LLP and an S Corporation, with the protection from liability that a C corporation has.  As you can imagine, this is a very popular business type.  Finally, in many states, sole-owner LLC’s are allowed.  This means that, unlike a partnership, which requires at least two people, one person can go into business all by himself and still have an LLC.  This is not the law in all states, however.

There are three drawbacks to an LLC.  First, LLC members have to observe some business formalities.  They do not have to observe as many formalities as a C corporation, but they still should have meetings, keep minutes, etc.  Second, LLC shares are not publicly traded.  That means that, like an S corporation and an LLP, your business can grow quite strong, but it will never amass the capital of Google or Microsoft until it is publicly traded, which only C corporations can do.  Finally, the biggest drawback of an LLC is that the law covering LLC’s from state to state can be quite different.  Thus, an LLC may be an excellent choice for a business that is located primarily in one state, but businesses that are looking to operate in several states often choose an LLP, because the laws are more or less the same in each state.  This makes important business decisions easier for business owners who have operations in many states.

Is an LLC right for David?  Probably.  David wants limited liability, and the right to manage his business, two things he cannot have at the same time in an LP and an LLP.  He is going to have a small business, so a C corporation may not be necessary at first.  He is not allowed to own an S corporation because he is a nonresident alien.  But an LLC provides him with limited liability, protecting his personal assets, and he can still actively manage his business.  So David makes an LLC.  We wish him good luck, and hope his new business takes off and becomes quite successful!

For other information about Business Entities, please click on one of the following topics below:
Starting Your Own Limited Liability Business
LP & LLP
S or C Corporation
LLC and LC
An overview of registering business in different states
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