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Limited Liability Company (LLC): Glossary Definition

Definition of Limited Liability Company (LLC):

An LLC is a relatively new form of entity.  An LLC is a hybrid entity which combines the benefits of a corporation and a partnership.

The primary benefit of a corporation is the limited liability protections afforded to stockholders (the owners).  Profits of a C-corporation are subject to double taxation (at the corporate level and then at the stockholder level).

The primary benefit of a partnership is that there is only a single tax on profits (not double taxation like a corporation).  The partners (the owners) of a partnership are subject to potentially unlimited liability for all of the debts and obligations of the business.

LLCs are unique entities in that they provide their owners (called “members”) with the limited liability protections typically afforded to stockholders of a corporation without the double taxation of a corporation.

LLCs, which are subject to the governing state’s laws, are basically “creatures of contract”, meaning the owners (known as “members”) negotiate and enter into a contract (often called an “operating agreement” or “limited liability company agreement”) to determine the functioning of the company.  LLCs are much more flexible than corporations.

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Today’s Question — Friday, July 30

Must I pay all of my employees?

It is not unusual for start-up companies to have limited cash resources. It is also not unusual for entrepreneurs to entice employees to the company by offering stock compensation, instead of cash, until such time as the business can afford to pay regular salaries. However, it is advisable to consult with an employment lawyer in your state of operations to determine if this is permissible under the state’s wage statutes. In most cases, the lawyer will likely advise that each employee be paid an amount equal to applicable minimum wage amounts.

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