When a business owner thinks about the business structure to be adopted for formation of a company, the most popular is the ability to form a Limited Liability Corporation. Several countries today allow forming typical structures like partnership, sole proprietorship for possessing a business but Americans prefer the formation of a corporation with limited liability. A corporation with limited liability is not a company or a partnership firm but is a kind of business ownership that combines several features of partnership structures and of corporation. These companies can be called corporation but the correct term to call them is Limited Liability Company.

The owners of this corporation that has limited liability are called members and not shareholders or partners. There are unlimited numbers of members that can be included in formation of such corporation and they can be individuals, corporations or any other limited liability companies. The limited liability owners have the liability for protecting their corporation. This corporation exists as a different or as a separate entity just like a company. The corporation members are not generally held personal responsible or liable for the debts unless they are made an agreement or have signed a personal guarantee for the corporation. The advantage of formation of such Limited Liability Corporation is that they can select various methods for distribution of their profits. It is not like a partnership firm which generally is divided into a fifty-fifty ratio. This corporation has much more flexibility to use any method for profit distribution.

Such limited liability companies have to compulsorily keep formal minutes, record resolutions that are passed and also have regular meetings. Such kind of a business structure does not require any corporate resolutions or minutes since it is quite easy to operate such a form of business. The other benefit of forming such a company is that all the business profits or losses and expenditures pass through the company to the individual members. The benefit here is that with this method you can avoid the double taxation of paying individual tax and corporate tax. Usually this is considered a tax advantage but circumstances can sometimes even favor a corporation tax structure.

Almost all countries and states now allow the creation of Limited Liability Corporations. The formation of such a corporation is not as simple as the process of a sole proprietorship but the process is less as compared to others. The two major actions that are to be performed for its formation is the article of organization and operating agreement. The articles of organization are necessary to file when you plan to set up a limited liability company with the Secretary of State and have to pay the necessary fees. Such articles can be prepared by a lawyer and filed by you also. The operating agreement is not compulsory in all states but it is advisable to draft an operating agreement. This can help in defining your corporation’s ownership, profit sharing ratio, ownership changes and responsibilities.