Meaning of limited liability company - SS1 Commerce Lesson Note

A limited liability company (LLC) is a type of business structure that combines the benefits of both a corporation and a partnership. In simple terms, it means that the owners of an LLC, known as members, have limited personal liability for the company's debts and obligations.

Limited liability means that if the LLC faces financial difficulties, such as lawsuits or debts, the members are generally not personally responsible for those obligations. Their personal assets, such as their homes or cars, are protected from being seized to satisfy the LLC's debts. The members' liability is limited to their investment in the company, typically the amount of money or assets they contributed when forming the LLC.

This is different from a sole proprietorship or a general partnership, where the owners' personal assets can be at risk if the business encounters financial problems. In those cases, the owners are personally liable, and their personal assets can be used to settle business debts.

Additionally, an LLC offers flexibility in terms of management and taxation. It allows for pass-through taxation, meaning the LLC itself does not pay taxes. Instead, the profits or losses "pass through" to the members, who report them on their individual tax returns.