What is a Limited Liability Company?


In this article, we will discuss the Limited Liability Company and understand the limited liability company. We will also discuss the forming of limited, advantages, disadvantages of a limited liability company. Distinguish the partnership and Limited Liability Company.

What is a Limited Liability Company?

A Limited Liability Company is the type of business in which the owner is not individually liable for business liabilities and debts.  These companies are the combinations of characteristics of a corporation with those of sole proprietor and partnership. These companies’ features are similar to the corporation.

Understanding Limited Liability Companies (LLCs):

These companies’ business structure is allowed under state statutes. The owner of LLCs is known as members of the company.  Many states allow these companies anyone can be a member of the company such as individual, foreigners, corporation, and foreign entities but some states prohibit banks and insurance companies to be a member of the company.

An LLC is more formal than a sole proprietor and partnership, these companies follow the articles of the organization. LLC is easy to set up rather than a corporation with minimum requirements. In LLCs member’s wages are deemed to be part of operating expense and will be deducted from the profits of the company.

Forming the Limited Liability Company:

Requirements for forming the LLC might different in different countries, but there are many similarities in forming the LLC in many countries such as members must choose the name of the company before farming.

Once the name of the company is decided then members submit the request in legislative authority to know the availability of the name. If the name is available then those authorities allow using the name otherwise members have to select the name which is not registered.

Related article  Business Process Reengineering: Definition, Usages, And How Does Its Work

After confirming the name of the company articles of the organization must be submitted to the state’s legislative authorities.  These articles demonstrate the power, liabilities, rights, and obligation of each member. Other information included the name and addresses of the members and the company’s agents.

Advantages and Disadvantages of LLCs:


  1. LLC restricts the liability of members
  2. LLC is well organized and formal of doing business rather than partnership or sole proprietor.
  3. Articles of the organization are submitted at the time of forming the company, which reduces the conflicts or disputes between members.
  4. In many countries tax rates of LLCs are lower than individuals.


  1. Adopting the formalities of the state for LLC will increase the cost of the business.
  2. The state imposes many restrictions on LLCs, which might divert management’s attention from operational activities.


Forming the LLC is beneficial for a businessman because LLC will reduce the liability of the businessman. The Limited Liability Company has many attractive features for members. Because in LLC business is a separate legal entity and owner is the member of the company, which restricts the liability of the member.

In sole proprietor and partnership, the owner’s business liabilities will not be limited and is liable to settle the business liabilities from personal assets. 

We hope you will understand the importance of LLC, Please leave a comment for us if you have any query or question.