Limited liability companies (LLCs) are non-corporate entities that provide members with limited liability protection and the right to participate in the management and control of the business.
A business attorney at SODEN & STEINBERGER, APLC in SAN DIEGO, CA, can provide you with more information about LLCs and help you determine whether it is an appropriate structure for your business.
Limited liability
LLC members enjoy limited liability in that they are not generally held personally liable for the LLC’s debts and obligations. An partner can be personally liable if he or she separately contracts to be held liable; for example, if he or she guarantees a debt of the business or if the owner is personally negligent.
No double taxation
Like corporations, LLCs are separate legal entities; however, unlike corporations properly structure LLCs are treated as partnerships for federal income tax purposes. When properly structured, members are held personally responsible for the LLC’s taxes, similar to both a sole proprietorship and a partnership, and report any profits or losses on their personal income tax returns. This allows the LLC to avoid the double taxation faced by corporations. Even though the LLC does not pay federal income taxes, in some states, state income tax may be payable at the LLC level.
Management of limited liability companies
Most states that have LLC statutes allow members to participate in the management and control of the business without giving up their limited liability. State statutes also allow LLCs to have one or more managers. LLC members must put together an operating agreement to govern the affairs of the LLC. Although the agreement can be oral, it is strongly advisable to put it in writing. The agreement should outline the provisions governing the LLC’s operation and address the members’ rights, duties, and obligations. A well-written agreement can avoid many future disputes within the LLC, as well as potential litigation.
LLCs do not have to comply with state corporate laws and there are generally less restrictions on LLCs than on corporations. For example, LLCs are not required to hold shareholder meetings or keep records of any meetings. Corporations are required to extensively document all of their operations. Unlike corporations, LLCs do not have to have a board of directors or be managed by officers. Interests in LLCs are not freely transferable like stock.
LLCs do not have perpetual life. They can be dissolved at the end of a stated time period or when a member disassociates, unless the other members agree to continue the business.
Speak to a business law attorney
LLCs are quickly becoming one of the more popular business types because of the limited liability they provide members and relative freedom from government regulations. Since they are relatively new, it is important to make sure that your business stays abreast of current laws. An attorney at SODEN & STEINBERGER, APLC in SAN DIEGO, CA, can explain the laws to you and help you decide whether or not an LLC would be a logical business structure for you.
