An LLC provides limited liability and pass-through taxation. Its owners, called members, generally are not personally responsible for the company’s business debts, while profits and losses usually pass through to their individual tax returns.
The limited liability company developed as a hybrid form: it combines a corporation’s liability shield with the partnership’s flexible management and tax treatment. Wyoming enacted the first U.S. LLC statute in 1977, and IRS recognition of partnership-style taxation helped the structure spread nationwide.
LLC taxation is not completely fixed. A single-member LLC is usually treated as a disregarded entity for federal tax purposes, while a multi-member LLC is generally taxed as a partnership. An LLC may also elect corporate taxation, including S corporation treatment when eligible.
A common mix-up is assuming every partnership has limited liability; a traditional general partnership usually does not. Corporations can also achieve pass-through taxation by making an S corporation election, but “LLC” is the standard answer to this wording.