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The Rise of the LLC in Modern Business

ByRidge Dickey

Contrary to what many assume, the Limited Liability Company (LLC) is not a U.S. invention. LLCs originated in offshore tax havens and only became a popular onshore business entity in the United States just over 20 years ago.

Eventually, the federal government clarified the tax treatment of LLCs:

  • Single-member LLCs are disregarded as taxable entities
  • Multi-member LLCs are treated as partnerships for income tax purposes
  • LLCs can elect corporate treatment, choosing between C corporation or S corporation status

LLCs in Everyday Business

Today, LLCs are everywhere—like Starbucks, there’s an LLC on almost every corner. And that’s a good thing. It shows that many people are launching and operating their own businesses. For smaller businesses, the LLC has become the default structure due to its flexibility and simplicity.

Why Choose an LLC?

One of the biggest draws to LLCs is their asset protection benefits. Under the law, if an LLC member is a judgment debtor, the court can issue a charging order against that member’s interest. This means the creditor is limited to receiving distributions that the debtor would have received—no voting rights, no control, and no access to the LLC’s underlying assets.

This form of protection makes the LLC a powerful tool for shielding personal and business assets from liability.

LLCs vs. Corporations

While LLCs are ideal for many small business owners, corporate stock remains the preferred structure for larger companies and institutional investors. Shares of stock are:

  • Familiar to investors
  • Easier to value
  • Standardized for raising capital

Venture capitalists, in particular, tend to be more comfortable investing in corporations because they understand stock ownership and shareholder rights.

LLCs Are Like Dark Matter

LLCs are everywhere—yet often operate quietly in the background. Much like dark matter, they go unnoticed, but their presence is felt across the economy.

While corporations emerged in the 1600s during the rise of international trade, it took another 300 years for the LLC to gain traction. Now, they’re an essential structure providing flexibility, tax benefits, and asset protection to business owners around the globe.