Business Organization - Limited Liability Company

When properly formed and maintained, a Limited Liability Company provides the benefits of limited liability protection, operational flexibility and pass-through taxation without the restrictions applied to S corporations and limited liability partnerships.

However, pass-through taxation may not be available to a one-member LLC. Contact your tax professional for the latest developments. 

One or more people may form an LLC by signing and filing articles of organization with the Secretary of State. The articles of organization must include: 

• · Name of the limited liability company 

• · Latest date on which the limited liability company is to dissolve 

• · Address of its principal place of business in your state and, if different, its registered office and the name and address of its resident agent at the registered office in your state 

• · Statement of whether the limited liability company is to be managed by a manager or by its members. 

• · Names and street addresses of managers if managed by managers and of the initial members if managed by members. 

The LLC may wish to create an operating agreement, which is an internal document governing an LLC's operations and respective rights and obligations of its members. While it may not be required in your state, an operating agreement is advisable as the state has default provisions that apply unless provided otherwise. 

The owners of an LLC are called members and have both economic and management rights (including voting rights) and may constitute the management of an LLC. A manager is a person or entity charged with management responsibility for an LLC. The manager may or may not be a member.

A limited liability company is required to deliver an annual report of its business activities to the Secretary of State between January 1 and April 15. Because limited liability company laws differ from state to state, extreme care is needed in drafting legal documents that meet the requirements of your state's law. 

Prioritize Objectives 

Before deciding on a business organizational form, prioritize objectives for your business and decide what issues of business arrangements are most important to you: 

• · Decision making/management organization 

• · Liability for personal injury and product liability

• · Taxation issues, including the tax treatment of profits/losses and the deductibility of employee benefits such as health insurance, group term life insurance, and retirement plans 

• · Ease of making inter-generational transfers while owners are alive 

• · Desire for the business to continue after the death of the current owner

When starting a business, or when changing from one organizational structure to another, it's appropriate that owners consider advantages and disadvantages of each structure in meeting business, personal and family goals. The best structure for one type of business may not be best for another. The best structure for a new business may not be suitable as the business expands. 

After you have listed your objectives, discuss your specific situation with tax and legal professionals. Their recommendations will depend in part on how the characteristics of each type of business organization apply to your specific situation, preferences and objectives.

Disclaimer: This article is intended soley as a simple overview. Please check with your state for exact and up-to-date information.