The Limited Liability Entities Topic provides reporting guidance for limited liability entities organized in the United States that prepare financial statements in accordance with generally accepted accounting principles (GAAP).
Limited liability companies have characteristics of both corporations and partnerships but are dissimilar from both in certain respects. The following discussion compares characteristics typical of many limited liability company structures with characteristics of corporations or partnerships; however, those characteristics may not be present in all limited liability company structures.
Like a corporation, the members (that is, owners) of a limited liability company generally are not personally liable for the liabilities of the limited liability company. However, like a partnership, the members of an limited liability company—rather than the entity itself—are taxed on their respective shares of the limited liability company's earnings. Unlike a limited partnership, it is generally not necessary for one owner (for example, the general partner in a limited partnership) to be liable for the liabilities of the limited liability company. Also, unlike a limited partnership in which the general partner manages the partnership, or a corporation in which the board of directors and its committees control the operations, owners may participate in the management of a limited liability company. Members may participate in a limited liability company's management but generally do not forfeit the protection from personal liability afforded by the limited liability company structure. In contrast, the general partner of a limited partnership has control but also has unlimited liability, whereas the limited partners have limited liability like the members of a limited liability company. Additionally, all partners in a general partnership have unlimited liability. Like a partnership, financial interests in most limited liability companies may be assigned only with the consent of all of the limited liability company members. Like a partnership, most limited liability companies are dissolved by death, bankruptcy, or withdrawal of a member.
U.S. limited liability companies and limited liability partnerships are formed in accordance with the laws of the state in which such entities are organized. Because those laws are not uniform, the characteristics of limited liability companies vary from state to state. The characteristics listed in the preceding paragraph are not intended to be representative of characteristics in the statutes of each state. Preparers of a limited liability company's financial statements should be cognizant of the legislation enacted in the jurisdiction in which the entity is organized.