Key Terms
DEFINITION
A hybrid entity offering limited liability of a corporation AND tax benefits of a partnership. Owners are called members
Formation
No legal documents required. If two or more people do business together sharing management, profits, and losses, they ha
Taxation
Highly flexible. Each year the LLC can elect to be taxed as a corporation (corporate income tax on net income) or as a f
Liability
Members are not personally liable for LLC debts. Risk is limited to their financial investment.
Dissolution
Ends when the agreement to share profits and losses ends. Remaining partners can reconstitute the partnership without th
Common industries
Fast food, hotels, tax preparation.
International use
US businesses use franchises to operate in countries that restrict foreign business ownership. Locals own and run the bu
KEY DISTINCTION FROM PARTNERSHIP
A partnership is ongoing general business. A joint venture is for a single transaction or limited activity.
Double taxation
The corporation pays federal, state, and local tax on net income. Then if a dividend is declared, shareholders pay divid
Operating agreement
Not legally required but strongly advisable. Sets forth how the business is managed and operated.
Know the structure
Shareholders elect directors. Directors appoint officers.