A limited liability company (LLC) is a business form that combines some of the advantages of the corporate business form with the favorable tax treatment of business PARTNERSHIPs. Like a CORPORATION, a limited liability company is a legal entity existing separately from its owners, creating limits to their LIABILITY. Owners of LLCs, called members, have no personal liability for LLC obligations. Like a partnership, an LLC may elect to distribute all PROFITs and losses to its members, who in turn report these losses and INCOME on their personal tax returns. LLCs thus allow the benefits of limited liability and the ability to avoid corporate income taxes. Typically LLCs are used by wealthy investors as TAX SHELTERs to reduce their taxable income. Members can deduct losses to the extent they are at RISK—that is, their CAPITAL contributions to the LLC. Passive losses—losses in excess to their at-risk capital—can be used to offset income from other passive investments. In 1977 Wyoming passed the first laws allowing limited liability companies. Since then every state has adopted LLC statutes. To establish an LLC, one or more people must file articles of organization with the secretary of state. The term limited company or LLC must appear in the name of the company. When being established, LLCs usually include an operating agreement stating how the company will be managed. Like a BOARD OF DIRECTORS for a corporation, members of an LLC select managers to operate the company. Voting in an LLC is based on the capital contributions of each member. Unlike a corporation, in which ownership interests can be sold to other investors, in an LLC there is limited ownership transferability. Unless agreed by other members or provided for in a provision in the LLC’s creation, ownership interest cannot be transferred to other individuals. LLCs differ from limited liability partnerships (LLPs) in that LLCs have limited liability, while in LLPs partners retain personal liability.