The LLC is a relatively new type of hybrid business structure that is now permissible in most states. It is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. Formation is more complex and formal than that of a general partnership.

The owners are members, and the duration of the LLC is usually determined when the organizational papers are filed, and can be continued, if desired, by a vote of the members at the time of expiration.

From a legal standpoint, an LLC is a legal entity separate and distinct from its owners. From a tax standpoint, however, the LLC is generally not a separate entity.

An LLC is formed by filing articles of organization with the state. The LLC will also have an operating agreement, which details the rights, duties and obligations of its owners, who are called members.

Although the operating agreement may set a time limit for the life of an LLC, most LLCs have a perpetual life and do not dissolve on the death, disability or retirement of a member.

The sale or transfer of ownership interests during a member's lifetime is permitted if allowed in the operating agreement or in a separate agreement. There are generally no restrictions on who can be a member or on the number of members.

Management of an LLC is controlled by its members or managers as designated in the operating agreement.

Generally, the members of an LLC are not personally liable for the debts and other liabilities of the LLC. Instead, any creditor of the LLC may only reach the assets of the business.

An LLC is typically not a separate taxpaying entity, and the profits and losses of the LLC pass through to the members under the partnership tax rules. Although most LLCs are taxed as partnerships, the members may elect that the LLC be treated as a corporation for tax purposes.

No taxation at the entity level; limited liability of members; flexibility; lack of ownership restrictions.

No tax advantaged employee benefit plans, such as split dollar or deferred compensation. All member income subject to employment taxes.