Limited Liability Company
A limited liability company, or LLC, is a business structure that provides the limited liability features of a corporation, but the tax efficiencies and operational flexibility of a partnership. Unlike a corporation, the owners of a limited liability company are referred to as “members,” and the members can consist of a single individual, two or more individuals, and even corporations and other LLC’s.
Much like a corporation, a limited liability company provides personal liability protection for its members against company debts and judgments against the business. A member’s liability is limited to his or her investment in the LLC, therefore, the limited liability company protects its members from personal losses beyond their individual investment. Further, the limited liability company protects members against liability for actions by members on behalf of the LLC. However, unlike a corporation, a limited liability company is not subject to “double taxation” and instead is taxed like a partnership. While a corporation is subject to taxation at the corporate level and then at the shareholder level, a limited liability company is considered a “pass-through” entity and the LLC’s profits and losses are only reported on the individual member’s tax returns. Accordingly, a LLC is a favorable entity as it provides for favorable limited liability protections and tax treatment.
A limited liability company is formed by filing the Articles of Organization with the applicable state entity, either the Secretary of State or State Corporation Commission. Then, the members operate the LLC pursuant to an Operating Agreement, which determines and limits the business purpose of the limited liability company, and is the governing document as to how the LLC is to be managed. A limited liability company can either be member managed, or manager-managed, and the members have the flexibility to choose the managers or managing-members and otherwise determine how the company is run. While the limited liability company structure is generally advantageous, it does not provide for outside funding or investors as it is solely funded by its members. Moreover, the business purpose of the limited liability company is limited by the Operating Agreement, whereas a corporation does not typically limit its business scope.
For more information on buy-sell agreements, please contact Antonoplos & Associates at 202-803-5676 or on the web at www.Antonlegal.com.