The Limited Liability Company
The limited liability company "LLC" is the most well-known business entity and usually fits well with most businesses. The LLC is a flexible formation that blends elements of the partnership with the corporation. It is a good midway point between the two if neither the corporation nor the partnership work well with your business objectives.
Overview of the Limited Liability Company
- The owners of an LLC are called members, as oppose to partners or shareholders.
- The number of members is unlimited and can be comprised of individuals, corporation or even other limited liability companies.
- The owners of an LLC have the limited liability of a corporations (that is, members cannot be held personally liable for business debt unless they sign a personal guarantee).
- The limited liability company has a flexible profit distribution – unlike a partnership where everything is split equally between partners.
- There are no stringent meeting formalities as with the corporation. LLC members don't mandatorily have to meet, which makes operation much less complicated.
- There is no double taxation as with the corporation.
Downfalls of the Limited Liability Company
- When a member dies or undergoes bankruptcy, the LLC must dissolve absent a clause in the operating agreement that states otherwise. It is especially important to have an iron clad operating agreement that best represents your individual and business objectives in the present and future.
- Staying Private: The prospect of going "public" and issuing shares is not an option for the limited liability company at any point. If your intentions are to be listed on the stock market, you must incorporate as a corporation.
Formation of the Limited Liability Company
After receiving the advice of a trusted Attorney and being sure a limited liability company is the right path for you, you must now file the proper paperwork. Lucky for you, this isn't as extensive of a procedure as the corporation nor are there very many ongoing formalities.
To form your limited liability company you first must file the articles of organization with the Secretary of State and pay the required filing fee. Next, it is highly advised – however not required – that you draft an operating agreement that defines the company profit sharing, ownership, responsibilities, ownership changes, etc. as well.
Failure to draft an air-tight operating agreement may lead your LLC into legal issues including early termination if a member passes away or goes into bankruptcy.
If any of these procedures seem overwhelming to you or you are unsure of how to draft a sound operating agreement, contact our firm and we can help you with any of these steps.
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