Limited Liability Company

A limited liability company – commonly referred to as an “LLC” – is a type of business entity that is very commonly used in the United States, and is increasingly popular. It did not exist in the United States until 1977, when Wyoming became the first state to adopt a limited liability company act. An LLC is similar to its European equivalent, the private limited company. LLCs are popular because they provide owners with pass-through taxation at the company level, they require less legal formalities than corporations, the owners have a great deal of flexibility in how they choose to structure their internal corporate agreements, and because they still provide owners with limited liability protections, similar to a corporation. However, there is much less case law governing LLCs than governing corporations, and therefore courts often struggle in deciding disputes between LLCs owners. Due to the lack of formalities, LLC owners often put together little to no internal corporate paperwork, making the job of the courts even more difficult in the case of disputes. Given those issues – in particular, the lack of clarity as to how LLC disputes should be resolved – LLCs often are less attractive investments for outside investors who aren’t closely tied to the owners, whether as friends or family.