An LLC is taxed as a pass-through entity for federal income tax purposes, but can elect to be taxed as a corporation. States honor the federal classification for income tax purposes, but that does not exempt the LLC from franchise, sales or property taxes.

An LLC can be managed by its members (member-managed) or by managers who are selected by the members (manager-managed). By default an LLC is member-managed, but the operating agreement can provide otherwise.

Absent an operating agreement adopted by its members, the LLC is governed by the default provisions provided in the law of its formation state. Not only can these provisions conflict with the members' desires, they can change which exposes the LLC to rules never envisioned when it was formed.

Learn the answers to frequently asked questions about forming and operating a limited liability company (LLC).

A limited liability company (LLC) provides the flexibility of a partnership with the liability protection of a corporation. The LLC's owners can determine the management and financial structure to meet their needs, while keeping their personal assets beyond the reach of the company's creditors.

A limited liability company (LLC) generally has fewer compliance burdens than a corporation. However, in nearly every state, an annual report must be filed by every LLC formed or registered to do business in the state. An annual report asks for only a few basic facts regarding the LLC, but filing to file can have serious consequences.

The LLC operating agreement defines how the company is run. It covers the crucial areas of management authority, voting rights, allocation of profits, losses and tax items, withdrawal or admitting of members and events triggering a dissolution. Absent an operating agreement, the LLC is governed by the default state rules, which seldom represent what the members would prefer.

Ten important differences other than taxation to consider when choosing between a corporate or LLC business structure.

View state naming requirements for LLCs and corporations, including name reservations, name transferability options, and required and prohibited words in company name.

Get the know-how on state record retention requirements for LLCs and corporations.