The Limited Liability Company (LLC) is a comparatively new form of business entity, which started in Wyoming in 1977. It is neither a corporation nor a partnership, but combines the benefits of both. The persons who have interest in an LLC are known as 'members' rather than 'shareholders'. The liability of members is limited to their investment in the LLC. This means that they cannot be held personally liable for company debts unless they have stood a personal guaranty. Tax liability is like that of a partnership, but this may differ in the case of a single-member LLC.
The laws relating to LLCs vary from state to state, though there are attempts to bring about a national, uniform code. Software explaining individual state rules and the details of the procedures for registration and operation is available. Registration is simple and the cost is moderate. The process can be completed within a couple of days. You can either do it yourself, with the software, or entrust the job to a professional.
One (in some states) or more persons can form a LLC by filing the required papers with the Secretary of State and paying the stipulated fees. Banks and insurance companies may not qualify to register a LLC. Certain states restrict some professionals, like accountants and architects, from forming an LLC to render their services.
The management of an LLC is very flexible. The members can decide on the type of management they want. Either all the members together, a single member or a small group of members can run the company. Alternatively, an outsider (including a corporation) can be appointed to manage the affairs of the company. The management parameters are usually set out in a document known as the Operating Agreement.
Normally the voting rights would be in proportion to the interest held, but with the consensus of members it could be one member one vote. The members can also decide the guidelines for profit sharing, mode of dissolution and transfer of interest.
A properly structured LLC can be ideal for several types of businesses. That is why LLCs are gaining in popularity. Next Article: Forming an LLC Online