A limited liability company (abbreviated as LLC or L.L.C.), is a business entity that provides limited liability to its owners. Limited liability companies are sometimes incorrectly referred to as limited liability corporations. LLCs are a very popular choice for new businesses because of their flexibility and minimal maintenance. They share many characteristics of corporations and partnerships or sole proprietorships (depending on the number of owners). Illinois and a handful of other states allow for series LLCs, which act as holding companies with subsidiaries.
Flexibility and Maintenance
Although limited liability formation is slightly more expensive than forming a corporation, LLCs are often more cost effective in the long run because they usually require less maintenance and formalities. Limited liability companies are the most flexible of business entities. Unlike S-Corporations, they can have an unlimited number of shareholders, have many other types of business entities as owners and have certain nuances that are very attractive to investors. LLCs are governed by a limited liability company operating agreement, which is similar to bylaws for a corporation.
SERIES LIMITED LIABILITY COMPANIES
In addition to regular limited liability companies, there are also series limited liability companies. A series LLC acts as a holding company, or umbrella company with one or more subsidiaries. Series LLCs are often used to hold multiple pieces of property or multiple related businesses. This is done to minimize exposure to liability. Consider the three following examples:
Example 1: John has five apartment buildings where he is the sole owner. If one of his tenants successfully prevails against him in a lawsuit, and John’s insurance does not cover the claim, that tenant could take John’s personal assets (house, money, car, etc) as well as all of John’s apartment buildings.
Example 2: John has five apartment buildings, but all of the buildings are owned by a single LLC. If one of his tenants successfully prevails against him in a lawsuit, that tenant could take all five of John’s apartment buildings. However, John’s personal assets (house, money, car, etc) would be protected.
Example 3: John has five apartment buildings, but each of the buildings are owned by a series (or single LLC). If one of his tenants successfully prevails against him in a lawsuit, that tenant could take one of John’s apartment buildings. However, John’s four other apartment buildings, as well as his personal assets (house, money, car, etc) would be protected.
