What is a limited liability company (LLC)?

A limited liability company (LLC) is a distinct form of business structure that effectively combines the benefits of both a corporation and a partnership. One of its key features is the liability protection it offers to its owners, known as members. This means that members are typically not personally responsible for the debts and liabilities of the LLC, similar to the protection provided to shareholders in a corporation.

Additionally, an LLC enjoys flexible tax treatment. By default, it is considered a pass-through entity for tax purposes, meaning that the profits and losses of the business can be reported on the members' personal tax returns, much like in a partnership, thus avoiding double taxation on the business level. This blend of liability protection and favorable tax treatment is why LLCs are favored by many small business owners and entrepreneurs.

In contrast to this, the other options describe entities that do not accurately define an LLC. Corporations operate under strict regulations and have a different legal structure, while informal partnerships lack formal recognition and liability protection. Trust organizations serve a distinct purpose related to asset management and protection, which is separate from the operational and liability aspects of an LLC.