A Limited Liability Company (LLC) can be defined as a business entity that incorporates some aspects of a corporation together with those of a partnership/sole proprietorship. The LLC is relatively a new concept in the United States which was geared towards helping small businesses have accessibility to the benefits that are often associated with corporations while maintaining their small model of operation. This form of company is therefore flexible as it borrows from the two models and can be referred to as a hybrid business (Daily, p 42).
This type of business is also known as ‘a company with a limited liability’. This paper shall aspire to define a limited liability company and give its role in accounting. Limited Liability Company: Even though LLC is a business entity, it is usually a form of unincorporated association and at the same time not a corporation. It however shares critical elements from both the corporation and the partnership form of business.
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From the corporation, the LLC borrows the limited liability element whereas from the partnership, it borrows the element of pass-through income taxation (IRS. gov, para 1). The LLC provides great relief for business people who are operating as sole proprietors since the tax benefits are by far more valuable compared to the liability reducing benefits associated with incorporations. An LLC in most instances has to choose its tax status on whether to be treated as sole proprietorship or a corporation (McGuigan, para 2).
With the LLC, the limitations of the liability are very crucial as they remove the burden of bankruptcy and debt issues from the owners which may drastically affect his/her credit rating. Thus personal assets are usually protected in the event that the business entity is faced with law-suits (Friedman, p 79). Work Cited: Daily, Frederick W. Tax savvy for small business: year-round tax strategies to save you money. 1999. Nolo; ISBN 0873375343, 9780873375344
Friedman, Scott E. How to Profit by Forming Your Own Limited Liability Company. 1995 Dearborn Trade Publishing; ISBN 0936894938, 9780936894935 IRS. gov. Limited Liability Company (LLC). Retrieved on 8th July 2010 from; http://www. irs. gov/businesses/small/article/0,,id=98277,00. html McGuigan, Brendan. What is a Limited Liability Company? 2010. Retrieved on 8th July 2010 from; http://www. wisegeek. com/what-is-a-limited-liability-company. htm
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