Limited Liability Company LLC. CPA Reg

In this video, I explain limited likability company LLC as covered on the CPA exam.
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A Limited Liability Company (LLC) is a business structure that offers two significant advantages to its members (owners):

Limited Liability Protection: Similar to shareholders in a corporation, members of an LLC are not personally liable for the company's debts and liabilities. This means that if the LLC faces financial difficulties or legal issues, the personal assets of the members (like their homes, cars, or personal bank accounts) are usually protected.

Pass-Through Taxation: By default, an LLC is taxed in a manner similar to a partnership. This means the profits and losses of the LLC "pass through" to the personal tax returns of the members. Therefore, the company itself is not taxed directly. Instead, members report the business's financial results on their personal tax returns, avoiding the double taxation that corporations face (where profits are taxed at both the corporate and shareholder levels).

It's important to note that while these are the default tax rules for LLCs, they can choose to be taxed as a corporation if that is more beneficial for their specific circumstances. This flexibility in taxation is another appealing aspect of the LLC structure.


In the context of a Limited Liability Company (LLC), there are two primary sources of governance: the LLC statute (which is the state law governing LLCs) and the operating agreement created by the LLC members.

LLC Statute: This is the set of laws enacted by the state that outlines the basic legal framework for all LLCs in that state. It includes rules on how LLCs should be formed, operated, and dissolved.

Operating Agreement: This is an internal document created by the members of the LLC. It specifies how the LLC will be run and covers details such as the distribution of profits, management structure, and procedures for resolving disputes among members. The operating agreement is tailored to the specific needs and preferences of the LLC's members.

The key point to understand here is that while the LLC statute provides a general legal framework, the members of an LLC have the flexibility to create an operating agreement with provisions that differ from the state statute. Typically, if there is a conflict between the operating agreement and the state statute, the terms of the operating agreement will prevail, as long as they are not in violation of the law.

This flexibility allows LLC members to customize the governance of their company to suit their specific needs. Additionally, operating agreements are not usually filed with the state and may not even need to be in writing, according to the Uniform Limited Liability Company Act. This makes them a flexible and private tool for managing the internal affairs of the LLC.


To establish a Limited Liability Company (LLC), specific steps are followed, one of which is filing the "articles of organization" with the state's Secretary of State office. Here's a breakdown of what this typically involves:

Declaration as an LLC: The articles must clearly state that the entity being formed is a Limited Liability Company.

Name of the LLC: This is the official name of the business, and it must include a designator (like "LLC" or "Limited Liability Company") to indicate its status as an LLC.

Registered Office and Agent: The articles should provide the physical street address of the LLC's official registered office. This is not necessarily where the business operates but is an official address for legal purposes. Additionally, the name of the registered agent (a person or service designated to receive legal documents on behalf of the LLC) must be included.

Management Structure: If the LLC will be managed by specific managers (as opposed to being managed by all members), this must be stated in the articles. This declaration outlines the governance structure of the LLC.

Names of Managing Members/Managers: If the LLC is to be managed by certain individuals, their names should be listed in the articles. This is especially relevant if the management is not vested in all the members but in specific appointed managers.

These elements make up the core information required in the articles of organization, forming the legal foundation of the LLC. The requirements can vary slightly by state, but these are the general components most states require for an LLC's formation.






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