It is a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.
[1] An LLC is not a corporation under the laws of every state; it is a legal form of a company that provides limited liability to its owners in many jurisdictions.
[4] An LLC is a hybrid legal entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are).
[5] Although LLCs and corporations both possess some analogous features, the basic terminology commonly associated with each type of legal entity, at least within the United States, is sometimes different.
[7] In the absence of express statutory guidance, most American courts have held that LLC members are subject to the same common law alter ego piercing theories as corporate shareholders.
[13] The law was a project of the Hamilton Brothers Oil Company, which sought to organize its business in the United States with liability and tax advantages similar to those it had obtained in Panama.
[16] As promulgated by the Internal Revenue Service (IRS) in 1960, the Kintner regulations set forth a complex six-factor test for determining whether such business associations would be taxed as corporations or partnerships.
Accordingly, the Wyoming Legislature tailored its statute to grant LLCs particular corporate features without exceeding this threshold.
[13] For several years, other states were slow to adopt the LLC form because it was unclear how the IRS and courts would apply the Kintner regulations to it.
The default tax status for LLCs with multiple members is as a partnership, which is required to report income and loss on IRS Form 1065.
[29] There is concern that LLCs, by combining limited liability with no entity-level taxation, could contribute to excessive risk-taking and harm to third parties.
Unlike state laws regarding stock corporations, which are very well developed and provide for a variety of governance and protective provisions for the corporation and its shareholders, most states do not dictate detailed governance and protective provisions for the members of a limited liability company.