Limited Liability Company (LLC)
A Limited Liability Company is not a partnership or a corporation but includes features of both.
LLCs are structured like a partnership or a sole proprietorship but with limited liability protection similar to a
Like a C Corporation, an LLC is considered as a separate tax and business entity from its owners.
Because an LLC is considered a separate entity from its owners, the owners cannot be held personally liable
for debts and obligations of the LLC, absent any fraud.
This is one of the principal advantages of an LLC.
LLC's provide all the liability protection of a C Corporation but with less formalities and corporate obligations.
For example, bankruptcy can have serious personal consequences for a sole proprietorship or general partnership.
However, if an LLC declares bankruptcy the owner's assets are considered separate from the assets of the LLC and are
thus protected from bankruptcy.
Each state has different rules governing LLCs.
There are usually special rules for foreign LLCs.
LLCs do not issue corporate stock.
LLC owners are called "members" not partners or shareholders.
The formation documents for LLCs are called Articles of Organization.
Every LLC must file Articles of Organization with a state agency - usually the Secretary of State.
PCF can prepare Articles of Organization based on your specific business requirements.
The IRS does not recognize an LLC as a classification for federal tax purposes.
LLC members can elect for the IRS to tax the LLC as a sole proprietorship, partnership, C Corporation, or S Corporation.
This decision may be made within 12 months after the LLC is created.
If a single member LLC does not declare a tax classification within the alloted time it is taxed the same as a sole proprietorship.
A multiple member LLC that does not declare a tax classification is taxed as a general partnership.
There is more information at the IRS web site.
Some features that make LLCs fifferent from S and C Corporations
LLCs may be governed by an Operating Agreement.
Operating Agreements may include requirements for profit sharing, ownership responsibilities and almost anything else that involves the management and
operation of the LLC.
Although Operating Agreements are not legally required, it is highly advisable to have one.
If your LLC should encounter difficulties down the line a well drafted Operating Agreement can potentially save a lot of time and money.
PCF can prepare an initial Operating Agreement based on your specific business requirements.
- LLCs are not required to to hold director and shareholder meetings
- A board of directors is not required
- The owners and managers may make all management and operation decisions
- Generally have more flexibility in the way that profits are distributed
- Require no corporate minutes or resolutions
- Owners do not have to be residents or citizens of the USA