A limited liability corporation is a separate corporate business unit that has a separate legal structure. Although it incorporates many features of partnership and corporation, it cannot be considered similar to either. The unique set of advantages it offers due to its distinct corporate structure has endeared it to many people. The limited liability corporation has been a long-standing concept. However, in the United States it offers a relatively new category of business entity to entrepreneurs and investors. This model is a revised adaptation of the German GbmH model. It is possible to judge the advantages offered by this new business unit by understanding the business model of partnership and corporations. A corporation offers limited liability protection to the individual owners, investors and shareholders. Thus, the losses and debts of the corporate organization are not reflected upon on the individual owners. However, there are many complexities involved in corporations, regarding ownership, number of members, and distribution of profits, management control and functioning. A limited liability corporation provides limited liability to its members without the double taxation found in corporations. There is no intervening structure in a limited liability corporation. The profits, dividends, expenses and losses are reflected on the individual members, depending on investment and expenses. Hence, it offers a more flexible profit distribution method. There is no curtailing of investment and number of members (one or many). The entire structure is relatively informal, with all members having the right to participate in management meetings. There is no constraint on having regular meetings. The formalities required for setting up a limited liability corporation are much simpler than for a corporation. A partnership and sole proprietorship has the taxation advantage without the limited liability protection of a limited liability corporation. Due to this high amount of personal risk, partnerships often insist that only a few members with high shareholdings can participate in the meeting. |
