Limited Liability Company
Like a corporation, a limited liability company (LLC) is a separate legal entity formed under state law. Rather than being called a corporation, it is called a company, and it has members rather than shareholders. The document that governs the internal affairs of the company is called an operating agreement. Just like a corporation, some states require an initial report to be filed by an LLC within a short period of time after formation, and about half of the states require a report to be filed each year.
An LLC has the characteristics of a corporation in that all members have limited liability. If an LLC has only one person in its membership, it is taxed like a sole proprietorship (Form 1040, Schedule C). If there is more than one member, the LLC is taxed like a partnership, so all items of profit and loss flow through to the members (Form 1065). An LLC may also elect to be taxed like a corporation.
An LLC can be governed like a corporation, with a board of managers and officers, or like a partnership, with a manager running the show. You can also have a member-managed LLC, in which all the members have decision-making powers. If you plan to raise capital from investors, however, you would want to have your LLC run by a manager or board of managers, as opposed to a member-managed LLC.
