What Exactly is an LLC?
By Lindsay Rife
LLC. Louisiana Lottery Corporation? Long Leg Cast? Long Life Coolant? Left Lane Camper? Here we go: Limited Liability Company.
To be quite honest, beginning my research with solely a halfway forgotten semester of Economics under my belt, those were just a few of the options running through my head while pondering the term “LLC.”
I am a three-day-old high school graduate, and I have no idea about anything “business.” Don’t stop reading though—don’t shrug me off as ignorant—I’m trying to learn. Admit it—I am in some of your shoes. I am walking you through my journey of learning. Let’s gain knowledge of something new together.
Why did I choose to start with a limited liability company? Why should you choose a limited liability company? I was curious—I am not ashamed to admit that I had no idea what it was. You may be curious too, so let’s figure out the basics.
Basically, an LLC combines the best features of the partnership and corporate business structures. Corporations give protection from personal liability for business debts, as does an LLC. But that corporation has to pay its own taxes—whereas the owners of an LLC report the business’s profits and losses on their own personal tax returns, much like they would if the case was a partnership.
The whole concept of an LLC is “limited liability.” (You know, the first two L’s?) That’s a mouthful and was kind of difficult for me to understand at first, but here’s an example that helped me out: the business (let’s say we’re talking about a bakery) itself can’t pay the rent for its shop. The concept of limited liability prevents the big, bad creditor from legally trying to seize the LLC owner’s car, home, or any other possession. Because only that bakery’s assets are used to pay off its debts, the owner can only lose the money he or she has invested in the bakery.
Ah, but that situation is not so sweet (insert joke here about the irony of the bakery illustration) when one considers the exceptions to that limited liability. Just like in corporations, an LLC owner can be held liable personally if he or she fails to act fairly or legally, fund sufficiently, keep the LLC and personal business separate, or to create an operating agreement.
Now let’s talk management. I learned that in LLCs there is “member management,” and the way-too-awkward-to-say “manager management.” Member management is the way of choice for most small LLC owners, in which they both participate equally. Manager management is when one or more owners are designated, sometimes even outsiders, to manage the LLC. Non-managing owners (investors, perhaps) just share in the profits. But in this case, only the named managers act as representatives of the LLC.
Now I’ve got a good grasp on what exactly an LLC is, and I hope you do too. Intrigued? If you’re interested in learning more about forming your own limited liability company, look around, because you’re in the right place. Good luck!
About the Author:
Lindsay is a talented writer who is just leaving High School and heading to college. Soon, she will be facing the same business related decisions that so many of us deal with on a daily basis. Among those, she is faced with deciding between starting and running a business or joining the ranks of corporate America. We asked Lindsay to let us follow her as she learns about the options related to owning and running a business and her articles and posts will reflect that journey. Enjoy!
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