Information Center: Business Organizations
Limited Liability Companies (LLC)
A limited liability company (LLC) is a relatively new business entity. Wyoming was the first state to enact an LLC statute in 1977 and Florida followed in 1982. In 1988, the Internal Revenue Service (IRS) issued Revenue Ruling 88-76, which concluded that LLCs formed under Wyoming law would be taxed as partnerships. This decision caused numerous other states to enact LLC statutes. LLCs are non-corporate entities that provide members with limited liability protection and allow members to participate in the management and control of the business. A business attorney at Law Offices of Schachter P.C. in Jackson Heights, New york can provide you with more information about LLCs and help you determine whether it is an appropriate structure for your business.
Limited Liability
LLC owners enjoy limited liability in that they are not generally held personally liable for the LLC's debts and obligations. An owner can be personally liable if he or she contracts to be held liable; for example, if he or she guarantees a debt of the business or if the owner is personally negligent.
Tax Consequences
LLCs are separate legal entities like corporations, but are treated as partnerships for tax purposes. The owners are held personally responsible for the LLC's taxes, similar to both a sole proprietorship and a partnership, reporting any profits or losses on their personal tax returns. This allows the LLC to avoid the double taxation faced by corporations. Even though the LLC does not pay federal income taxes, some states do charge a tax on the LLC.
Management of the Business
Most states that have LLC statutes allow members to participate in the management and control of the business without giving up their limited liability. State statutes also allow LLCs to have one or more managers. LLC members must put together an operating agreement to govern the affairs of the LLC. Although the agreement can be oral, it is strongly advisable to put it in writing. The agreement should outline the provisions governing the LLC's operation and address the members' rights, duties, and obligations. A well-written agreement can avoid many future disputes within the LLC, as well as potential litigation.
LLCs do not have to comply with state corporate laws and there are generally less restrictions on LLCs than on corporations. For example, LLCs are not required to hold shareholder meetings or keep records of any meetings. Corporations are required to extensively document all of their operations. Unlike corporations, LLCs do not have to have a board of directors or be managed by officers. Interests in LLCs are not freely transferable like stock.
LLCs do not have perpetual life. They can be dissolved at the end of a stated time period or when a member disassociates, unless the other members agree to continue the business.
Conclusion
LLCs are quickly becoming one of the more popular business types because of the limited liability they provide members and relative freedom from government regulations. Since they are relatively new, it is important to make sure that your business stays abreast of current laws. An attorney at Law Offices of Schachter P.C. in Jackson Heights, New york can explain the laws to you and help you decide whether or not an LLC would be a logical business structure for you.
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