Limited Liability Companies have characteristics similar to partnerships, corporations and sole proprietorships. They have limited liability and income taxes are charged in a unique way. An LLC is flexible just like a sole proprietorship. An LLC is required by law to be flexible because the owners decide how the business is governed. LLCs file their income taxes based on the number of owners; partners, sole owners or as corporates.
Partnerships have requirements such as; there must be between two to 20 people to form a partnership. The partnership files income and losses, but the partners pay taxes separately. The partners are liable in case the partnership collapses or is unable to pay debts. Partnerships can only be formed and dissolved under well-defined circumstances. A corporation is formed by completing a certificate of formation with relevant authorities. The corporation is independent of its owners and pays its own taxes. The owners have limited liability.
An example of an LLC is the Chrysler Group, LLC. The motor vehicle making company may have been formed as an LLC rather than any other form of business entity because of two reasons. First, an LLC is easy to operate because the owners enjoy the privilege of operating the company as a corporation but still enjoy benefits of enjoyed by partnership businesses because of its flexibility. Secondly, the vehicle making company owners wanted to take advantage of the profit ratio, tax and company structure differences of an LLC. This is because an LLC incorporates characteristics of all other forms of ownership. The advantage that Chrysler enjoys being an LLC is that owners have limited liability protection in case the company fails to pay its debts. The owners can also share company profits in any way without respect to the ownership structure in the company. This is because the LLC form of ownership is flexible. However, LLCs are expensive to form; raising capital is hard since the company cannot issue stocks as is the case in other corporations.
Therefore, an LLC is a form of business ownership that incorporates the characteristics of partnerships, sole proprietorships and corporations. Chrysler Group, LLC is one such company. LLCs are flexible in nature.
References
Carter, C. (2012). Advantages and Disadvantages of Different Business Structures. Retrieved January 15, 2013, from Chron: http://smallbusiness.chron.com/advantages-disadvantages-different-business-structures-21149.html
DeAngelis, M. (2012, February 15). Business Entities. Retrieved January 15, 2013, from Hartford, Connecticut, USA: http://legalstudiesclassroom.blogspot.com/2012/02/business-entities.html
