What Is a Limited Liability Corporation?

Limited Liability Corporation textThough corporations feature limited liability, the term “Limited Liability Corporation” and “Limited Liability Corp” are actually misnomers; LLC is an abbreviation that stands for Limited Liability Company.

A corporation and an LLC are both business structures. The term “limited liability” in LLC means that the LLC owners (called “members”) are not personally liable for the debts of the company. In other words, when an individual invests $10,000 into his LLC, only that $10,000 is at risk. If the business subsequently loses $20,000, the individual loses only his $10,000 investment in the company and not $20,000 of his personal assets. This protection helps business owners from going personally bankrupt if the company is sued, fails, or acquires insurmountable debt.

Corporations have limited liability too, but are not called limited liability corporations. Rather, corporate limited liability comes about as a result of corporate personhood. Corporations are treated as separate and distinct legal entities from their owners; corporations file their own tax returns, have their own tax rates, and may be sued in court independently of their owners.

There are many similarities between limited liability companies and corporations, but also many differences. There is no such thing as a limited liability corporation or limited liability corp, and using these terms may cause confusion.