Query: What is the Limited Liability Company form of business? What
sets it apart from a corporation or a partnership?
Answer: Traditionally, most privately-owned businesses have organized
and operated as corporations or partnerships. In the mid-1990's a new form of business
organization called the limited liability company (LLC) was recognized in Ohio. This
entity combines many of the more favorable aspects of the partnership and the corporation,
while excluding many of the less favorable features of those business forms. Consequently,
an increasing number of business owners are finding that the limited liability company
is a suitable entity choice for their business.
A limited liability company, like a corporation, is a legal entity separate from its
members. It may be formed by two or more individuals or members. The members may
themselves be a legal entity such as a corporation, association or trust. Limited
liability companies offer the major tax advantage that a partnership does and a
corporation does not. That is, taxation on profits is only at the individual level, and
not also at the company level. Consequently, profits in a limited liability company
avoid being taxed twice the way they are in a corporation. While this is also true for
the "S" corporation form of business that allows owners to have the same tax advantage,
a limited liability company has far fewer restrictions imposed on it than the "S" corp.
The limited liability company is also very favorable to members with regard to liability.
In a corporation, owners are only liable up to (the limits of) their investment.
In a partnership, partners have unlimited liability for contracts entered into, and for
the wrongful acts committed by other partners. The limited liability company (LLC)
members, however have only the liability that a corporate owner does, up to the amount
of their investment.
While it is true that in a limited partnership (LLP) form of business, a limited partner
has liability only up to the amount he or she invested, and that a limited partner may
not take part in management, in contrast, a member of a limited liability company (LLC)
may manage as actively as desired, while still maintaining the limited liability
protection under the law.
Selection of the form of business entity, and the contracts for it, should be made with
the assistance and guidance of experienced counsel, in order to maximize the benefits
available under the law, minimizing risk.
Corporation. An ingenious device for
obtaining individual profit without
Ambrose Bierce, 1842-1914
American satirist, journalist, and short-story writer
AUTHOR / EDITOR: J. NORMAN STARK is an Attorney-at-Law, a Registered Architect, (AIA, NCARB) Registered
Landscape Architect, Interior Designer, Planner and Senior Appraiser (ASA), admitted to practice law before the Bar of
Ohio, the US District Courts, Ohio and Illinois (Central Dist.), the US Court of Appeals, and the United States Supreme
Court. He is a Mediator, Arbitrator and Litigator with experience in Business, Construction Law, and Public Works, and with
additional experience in Real Estate, Construction Attorney (Legal Project and Crisis Management), and as an Expert Witness
(Forensic Architect). His office is in Cleveland, Ohio.