What is a limited liability company?

A limited liability company, or LLC, is a business entity created under state laws which has the characteristics of both a corporation and a partnership. Like a corporation, the owners of an LLC are not personally liable for business debts. Like a sole proprietorship or partnership, an LLC has operating flexibility and is a pass-through entity for tax purposes. This means the LLC's profits are passed through and taxable to the owners of the LLC.

What are the main differences between an LLC and S-corporation?

Although an S corporation shares many of the same tax characteristics as an LLC, an LLC has more flexibility and fewer restrictions than an S corporation. An S corporation cannot have more than 100 stockholders, cannot issue more than one class of shares, and is subject to more formalities than an LLC. However, owners of an LLC are required to pay Social Security and Medicare taxes on profits. Corporate stockholders are not required to pay these taxes on profits over and above the stockholders' salaries.

Does an LLC need to hold formal meetings?

The answer is usually no, unless the LLC's operating agreement requires meetings. LegalZoom's operating agreements make meetings optional. This is one of the key advantages of an LLC - fewer formalities. This means less paperwork and less chance that the members will accidentally violate the law and thereby lose their liability protection.