What is an LLC?
A Limited Liability Company (LLC) is a business structure allowed by state statute that protects its owners from personal responsibility for their debts or liabilities. LLCs combine the favorable characteristics of a corporation and a partnership or sole proprietorship.
How to Form an LLC
An LLC is a formal partnership agreement and requires Articles of Organization to be filed with the state. This article requires several pieces of information which may vary by state. The most typical pieces of information are as follows:
• The name of the organization.
• The address of the company’s principal place of business
• The name and address of the company’s registered agent
• The names of the members, managers, and directors of the company
An LLC is officially formed upon the filing of the Certificate of Organization and when at least one person has become a member.
What does limited liability mean?
Limited liability is one of the most favorable aspects of forming an LLC. A debt, obligation, or other liability of an LLC is solely the debt, obligation, or other liability of the company. In certain circumstances, one can become personally liable under the doctrine of veil piercing, but this is not common.
Management of an LLC
An LLC is presumed to be member-managed unless the operating agreement indicates that it is manager-managed.
If the LLC is manager-managed the manager(s) decide all matters. If the LLC is member-managed, each member has equal rights. If deciding about something within the ordinary course of business you only need a majority, but if it is a decision about something outside the ordinary course of business all members must vote. A member of a member-managed LLC owes to the company and other members the duty of loyalty and care.
Taxation of an LLC
The LLC allows the owner to file a simple tax return like a sole proprietorship. The LLC allows the profits to be passed directly to the investors, so they are only taxed once. This is taxed as part of the investor’s income at the personal income tax rate.
LLCs must pay tax on the total amount of net income of the business.
A person has the power to dissociate from the LLC at any time by withdrawing as a member.
There are certain cases in which dissociation is wrongful such as if there is a breach of a provision in the operating agreement or if it occurs before the completion of winding up and withdrawals by express will or expelled by judicial order.
A person is dissociated when:
• The LLC has notice of express will,
• An event stated in the operating agreement has occurred that calls for dissociation,
• The entire interest of the LLC is transferred in a foreclosure sale,
• They are expelled (by the operating agreement and consent of all members),
• There has been a judicial order,
• Death of the member.
If you are thinking of starting an LLC and need some legal guidance, King Law is here to help. We can be reached at 888-745-KING (5464).