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More and more closely held companies are getting cozy with the LLC, but is a limited liability company right for you?

This story appears in the November 2006 issue of Entrepreneur. Subscribe »

For the LLC, it's been a relatively long road to popularity. When the limited liability company first appeared in the '70s, the tax and legal rules governing it were too confusing and onerous to make it an attractive option. In the '90s, after the IRS both clarified and simplified some of those rules, businesses began cautiously considering it.

Today, closely held companies are beginning to show a clear preference for the LLC, according to the latest data from the International Association of Commercial Administrators. LLC filings jumped in almost every state from 2004 to 2005, while corporate filings declined. "The tax benefits are becoming more clearly understood, the legal protection is there and people are getting more comfy [with the LLC]," says Dan Meehan, tax partner with New York City's J.H. Cohn. "And there are a lot of practitioners who didn't really understand LLCs and are now getting more familiar with [them]."

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