The Limited Liability Company combines the corporate advantage of limited liability with flow through tax advantages of partnership classification. In 1977 Wyoming became the first state to enact a limited liability company act. Since 1990 all US States have enacted similar limited liability company acts to that of Wyoming.
On 14 July 1992, Delaware enacted legislation that created a new business entity the Limited Liability Company (`LLC'). The LLC is the latest advance in the evolution of business formation. The concept has its historical origins in Europe and was accepted by the Internal Revenue Service in 1988. It offers entrepreneurs a clear and, in many instances, superior alternative to corporations and partnerships by COMBINING the corporate advantage of limited personal liability and the taxation advantage of all ventures, and the S Corporation. Also, it has definite advantages over regular or close corporations with closely held stock.
The LLC is Delaware's statutory answer to three of the most pursued objectives of today's emerging entrepreneurs:
An LLC offers limited personal liability to all of its owners (termed Members')
This business form is treated like a partnership or S corporation for tax purposes allowing income (or losses) to be reported on the Member's individual income tax returns, thereby avoiding the double taxation of general corporations.
The LLC provides great flexibility in organization and management of the business. It is expected that many of these entities will operate informally with little paperwork beyond a brief Operating Agreement'. Managers' may be elected by the Members to run the business
In summary, a Delaware Limited Liability Company is similar to:
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A general partnership where all the partners are free to participate in management
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A limited partnership where all the limited partners have limited liability
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An S Corporation without the ownership restrictions.
An LLC is not a corporation, and nor partnership. A Delaware Limited Liability Company is a new alternative business entity created under the laws of the State of Delaware in response to the demand for a better alternative to the traditional forms of business.
If the domestic LLC is structured properly and the organizational aspects are adhered to properly, and there are no US members and no US source income or foreign source effectively connected income, then the domestic LLC can be used to produce foreign source income and not have a federal tax liability on that foreign source income, nor have tax reporting requirements to the IRS.
