Limited Liability Company

Another structure for the conduct of business operations in the U.S. is the limited liability company. The limited liability company (LLC) is a form of unincorporated business organization that essentially is a hybrid between a corporation and a partnership. LLCs are very flexible and can be set up to allow entrepreneurs to emulate the governance characteristics of a corporation.

The relationships between the members of a LLC are governed by the operating agreement. The creation and operation of LLCs are governed by each state’s statute which specifically provides for LLCs. The LLC is confined to businesses whose interests are not publicly traded. The uses of a LLC range from small start-up businesses to public corporations that otherwise would form a subsidiary to enter into a joint venture to carry out a particularly risky project. Further, the members of the LLC can be other businesses. If not otherwise agreed to, loss of a member dissolves the LLC.

Advantages: The benefits of an LLC stem from its hybrid status. All of its members have limited liability, as in a corporation. Thus, its members enjoy limited liability and the debtors of the LLC cannot reach the member’s personal assets to satisfy the company’s debts. The LLC is treated as a pass-through entity for tax purposes, like a partnership. Unlike a limited partnership, members can and frequently do participate in the management. Also, LLCs are not bound by requirements for management by a board of directors. Another benefit of the LLC structure is that the numerous restrictions on “S-corporations” are not applicable to LLCs. As a result, corporations and non-resident aliens may be members of LLCs without jeopardizing the availability of favorable tax treatment.

Disadvantages: Although numerous states have adopted legislation creating LLCs, not all 50 states have done so. To date, 47 states and the District of Columbia have enacted LLC legislation. The LLC is still a young business concept; the first LLC statute was enacted 1977 in the State of Wyoming, Georgia followed suit in 1992. Therefore, the law continues to develop. As LLCs become more prevalent, the legal environment will become more certain.

Tax Considerations: For U.S. tax purposes, members of the LLC are treated like partners; profits and losses are carried on their individual income tax returns. Therefore, members of an LLC avoid the double taxation of income necessary in corporations. However, certain tax jurisdictions may elect to treat LLCs as a corporate entity and deny pass-through tax treatment to the LLC members.

Дата добавления: 2015-11-16