# ASC 272-10-05: Limited Liability Entities — Overall — 05 Overview and Background Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/272/10/#05-overview-and-background) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-09T23:21:07.043Z to 2026-09-09T23:21:07.043Z Record version: sha256:e41b0b8c0928058cffe9f09c930fba5944e44bf18a942f3392cfde9b35115a2f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 272-10-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/272/10/#05-overview-and-background) SEC content: no ##### [272-10-05-1](https://asc.understandingaccounting.org/asc/272/10/#272-10-05-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:21:07.043Z to 2026-09-09T23:21:07.043Z Record version: sha256:0135e4b9eb9fcceaef6005612bee90350565f0b6e87adfdf796d615ed99f731f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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). ##### [272-10-05-2](https://asc.understandingaccounting.org/asc/272/10/#272-10-05-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:21:07.043Z to 2026-09-09T23:21:07.043Z Record version: sha256:35ab7bf7992c7ca31c76bcf5a8a6415b3efd051bcb13bc7a9839dfc9d9494b36 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A limited liability company generally has the following characteristics: 1. a It is an unincorporated association of two or more persons. 2. b Its members have limited personal liability for the obligations or debts of the entity. 3. c It is classified as a partnership for federal income tax purposes. ##### [272-10-05-3](https://asc.understandingaccounting.org/asc/272/10/#272-10-05-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:21:07.043Z to 2026-09-09T23:21:07.043Z Record version: sha256:66e174a7f2c3785e902c7c4d0455ea7f897ca17c29e3eeb63633db8bd6825e16 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [272-10-05-4](https://asc.understandingaccounting.org/asc/272/10/#272-10-05-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:21:07.043Z to 2026-09-09T23:21:07.043Z Record version: sha256:fcedad02383939a44b377b137a29794347836151a468eafbbf4f2e70edeac6cf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [272-10-05-5](https://asc.understandingaccounting.org/asc/272/10/#272-10-05-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:21:07.043Z to 2026-09-09T23:21:07.043Z Record version: sha256:c839ff41bf876dd034088a6041d0654247c0d993bf2771a7a7ba488390e2ae01 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [272-10-05-6](https://asc.understandingaccounting.org/asc/272/10/#272-10-05-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:21:07.043Z to 2026-09-09T23:21:07.043Z Record version: sha256:b0f1a1101d8bea26a7e0b8775874447190f74f1a76aeb54a29680ff9a10eec69 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In order to be classified as a partnership for federal income tax purposes, a limited liability company must lack at least two of the following corporate characteristics: 1. a Limited liability 2. b Free transferability of interests 3. c Centralized management 4. d Continuity of life. Many states have adopted similar requirements for limited liability companies to be classified as partnerships for state income or franchise tax purposes. However, certain states have enacted limited liability company legislation that includes income tax requirements.