Basics of LLCs
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Limited liability companies are created and regulated under the laws of each individual state. An LLC has the limited liability characteristics of a corporation, but is generally treated as a partnership for federal tax purposes. Federal taxation of LLCs is governed by Subchapter K of the Internal Revenue Code. Unlike general partners, whose personal assets are at risk for claims against the partnership, LLC members are generally only at risk for their investment in the LLC. An LLC is nevertheless allowed pass-through taxation, avoiding double tax on income that is present in corporations. Combining the benefits of partnership and corporate characteristics, without many of the drawbacks, has created a surge in popularity of LLCs.