What is a “Limited Liability Company”? - A few pointers

Updated: May 29, 2021

· An LLC is much easier to set up than a corporation and provides more flexibility and protection.

· Limited liability companies (LLCs) are a business structure that is allowed under state statutes.

· The regulations surrounding LLCs vary from state to state. LLC owners are generally called members.

· Anyone can be a member including individuals, corporations, foreigners and foreign entities, and even other LLCs.

· A limited liability company (LLC) is a corporate establishment in the United States in which the owners are not personally liable for the company's debts or liabilities.

· LLCs don't pay taxes themselves.

· Profits and losses (P&L) are itemized on the personal tax returns of the owner(s).

· Incase fraud is discovered by the creditors or if a company has not met its legal requirements, then the creditors will be able to hold the members, accountable.

· An LLC is a more formal partnership arrangement which requires articles of organization to be filed with the state.

· The articles of the LLC declare the sole proprietorship, ownership flexibility, rights, powers, duties, liabilities, tax advantages, and other obligations of each member of the LLC

· Other information included on the documents includes the name and addresses of the LLC's members, the name of the LLC's registered agent, and the business' statement of purpose.

· Upon filing Articles of Organization, some states give you back a certificate of organization whereas some states just return the LLC Articles of Organization with a stamping showing the filing, a filing number and a date.

· While filing the articles of organization, it must be accompanied by a fee which has to paid directly to the state. Paperwork and additional fees must also be submitted at the federal level in order to obtain an employer identification number (EIN).

· Limited liability companies are an amalgamation of fiscally transparent entities. Partnerships are typically fiscally transparent entities.

· An LLC is not a corporation although it is a legal establishment which offers it’s services to its owners in many jurisdictions.

· LLC is well-known for the flexibility that they provide to its owners.

· An LLC if the need arises may choose to practice corporate tax rules instead of being treated as a partnership.

· Members' wages are considered operating expenses and are deducted from the company's profits.

· LLC in some cases are systematized as not-for-profit organization. They may share quite a few similarities with a nonprofit organization, but they differ when it comes to tax status or purpose, in certain US states for example Texas.

· Businesses that provide professional services requiring a professional license such as legal services may not be allowed to form an LLC but may be allowed to form a similar entity called professional limited liability company (PLLC).

· While the limited liability feature is similar to that of a corporation, the availability of flow-through taxation to the members of an LLC is a feature of partnerships.

Limited liability companies are corporate structures in the United States where owners are not personally liable for the company's debts or liabilities.Regulations surrounding LLCs vary from state to state. Any entity can form an LLC including individuals and corporations; however, banks and insurance companies cannot.LLCs do not pay taxes—their profits and losses are passed through to members, who claim them on their tax returns.One of the primary reason business owners elect to form a LLC is to limit the principal’s personal liability. LLC is mostly viewed as a partnership, which is a simple business formation under an agreement, and a corporation, which has certain liability protections.Depending on state law, an LLC may have to be dissolved upon the death or bankruptcy of a member.An LLC may not be a seemly fit alternative if the partners definitive objective is to become a publicly traded company.The primary difference between a partnership and an LLC is that an LLC divides the business assets of the company from the personal assets of the owners. Dividing the business assets and personal assets shields the owners from any future debts or liabilities.In case of sale or transfer of the business, a business continuation agreement is the only way to ensure the smooth transfer of interests when one of the owners leaves or dies. Without a business continuation agreement, the remaining partners must dissolve the LLC and create a new one if a partner files bankruptcy or dies.

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