A limited liability company ( LLC ) is a special form of private limited US company. This is a business structure that combines pass-through taxation of a single partnership or ownership with limited liability of a company. An LLC is not a company in and of itself; this is a legal form of a company that gives limited liability to its owner in many jurisdictions. LLCs are renowned for the flexibility they provide to business owners; depending on the situation, LLC may elect to use the corporate tax rules rather than be treated as a partnership, and, under certain circumstances, LLC may be set as non-for-profit. In certain US states (eg, Texas), businesses that provide professional services requiring state professional licenses, such as legal or medical services, may not be permitted to form LLC but may be required to establish a similar entity called a professional limited liability company ( PLLC ).
Video Limited liability company
Overview
A limited liability company (LLC) is a hybrid legal entity that has certain characteristics of a company and a partnership or sole proprietorship (depending on how many owners there are). LLC is a different kind of unrelated association of companies. The main characteristic of LLC's shares with corporations is limited liability, and the main characteristic that it shares with partnerships is the availability of passing income taxes. Often more flexible than corporations, and very suitable for companies with sole proprietors.
Although LLC and its companies both have some analog features, the basic terminology commonly associated with each type of legal entity, at least in the United States, is sometimes different. When an LLC is formed, it is said to be "organized" rather than "incorporated" or "hired", and its founding document is also known as an "organization article", not a "merger article" or "corporate charter". The internal operation of an LLC is further regulated by the "operating agreement", not its "rules". The beneficial owner of the LLC is known as a "member," rather than a "shareholder". In addition, ownership in LLC is represented by "membership interests" or "LLC interests" (sometimes measured in "membership units" or "units only" and at other times expressed as a percentage), not represented by "stock shares" or only "shares" (with ownership measured by the number of shares held by each shareholder). Similarly, when published in physical form rather than electronically, documents proving ownership rights in LLC are called "membership certificates" rather than "stock certificates".
In the absence of clear legal guidance, most American courts have stated that members of LLC are subject to the same general law of changing the ego piercing theory as a shareholder of a company. However, it is more difficult to penetrate the veil LLC because LLCs do not have many formalities to maintain. As long as LLC and its members do not mix funds, it is difficult to break through the LLC veil. Membership interests in LLCs and partnership interests are also given a significant level of protection through the ordering mechanism of filling. The charging order limits the creditor of the debtor-partner or debtor-member to the debtor part of the distribution, without giving the creditor the voting or management rights.
Members of a limited liability company may, in certain circumstances, also incur personal liability in cases where distribution to members renders the company bankrupt.
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History
The first country to enact legislation that authorized limited companies was Wyoming in 1977. Its form did not immediately become popular, partly because of the uncertainty in tax treatment by the Internal Revenue Service. Following the IRS's decision in 1988, Wyoming LLCs may be taxed as a partnership, other countries are beginning to impose LLC sculptures. In 1996, all 50 states had laws LLC.
Flexibility and default rules
LLCs are subject to fewer regulations than traditional companies, and thus may allow members to create more flexible management structures than is possible with other corporate forms. As long as it remains within the boundaries of state law, the operating agreement is responsible for the flexibility that members of LLC have in deciding how their LLC will be governed. State statutes usually provide automated or "default" rules for how an LLC will be governed unless the operating agreement provides otherwise.
The limited liability company ("LLC") has evolved into one of the most prevalent business forms in the United States. Even the use of single member LLC provides greater protection for member assets, compared to operating as a non-legal entity.
Effective August 1, 2013, the Delaware Company Law states that managers and controlling members of a limited liability company owe a fiduciary duty of care and loyalty to a limited liability company and its members. Under the amendment (requested by the decision of the Delaware Supreme Court at Gatz Properties LLC Auriga Capital Corp., LLC parties remain free to extend, limit or eliminate fiduciary liability in their LLC agreements ( subject to the implied agreement of goodwill and fair agreement).
Below 6 Del. C. Sections 18-101 (7), the Delaware LLC operating agreement may be written, oral or implied. It establishes member capital contribution, ownership percentage, and management structure. Like prenuptial agreements, an operating agreement can avoid future disputes between members by overcoming buy rights, appraisal formulas, and transfer restrictions. LLC's written operations agreement must be signed by all its members.
Income tax
For US federal income tax purposes, LLC is treated by default as a pass-through entity. If there is only one member in the company, LLC is treated as a "neglected entity" for tax purposes, and the individual owner will report LLC's profit or loss on Schedule C of his personal tax return. Accordingly, income from LLC is taxed at the individual tax rate. The default tax status for LLCs with some members is as a partnership, which is required to report income and losses on the IRS Form 1065. Under the partnership tax treatments, each member of LLC, as for all partner partners, annually receives Form K-1 which reports the member's distributive part of the gain or loss of LLC which is then reported on the member's individual income tax return. On the other hand, income from the company is taxed twice: once at the corporate entity level and again when it is distributed to shareholders. Thus, tax savings are more often generated if a business is formed as an LLC rather than a company.
An LLC with one or more members may elect to be taxed as a company through the submission of the IRS Form 8832. After selecting the corporate tax status, LLC may elect further to be treated as a regular C enterprise (taxation of the entity's income prior to any dividends or distributions to member and then taxation of dividends or distributions ever received as income by members) or as company S (income and loss of entity level passes to member). Some commentators have recommended LLC taxed as an S company as the best small business structure. It combines the simplicity and flexibility of LLC with the tax benefits of S-corporations (self-employment tax savings).
Benefits
- Choice of tax regime. An LLC may choose to be taxed as a sole proprietor, partnership, S corporation or company C (as long as they will qualify for such tax treatment), providing a great deal of flexibility.
- Limited companies with some members who choose to be taxed because the partnership may specifically allocate revenue sharing, profits, losses, deductions or credit members through a company operating agreement on a basis other than the percentage of ownership of each member as long as the rules contained in the Financial Regulations (26 CFR) 1.704-1 are met. S firms may not specifically allocate profits, losses and other tax items under US tax laws.
- The LLC owner, called a member, is protected from any or all liability for LLC's actions and debt, subject to country shield laws.
- In the United States, S company has a limited number of shareholders, and they all must be US citizens; LLC may have an unlimited number of members, and there are no statutory restrictions.
- Fewer administration and record documents than corporations.
- Taxes are passed (ie, there is no double tax), unless LLC chooses to be taxed as a C. corporation.
- Using the standard tax classification, profit is taxed privately at the member level, not at the LLC level.
- LLCs in most countries are treated as separate entities from their members. However, in some jurisdictions such as Connecticut, case law has determined that owners are not required to submit sufficient facts to penetrate the corporate headscarf and LLC members may be personally liable for LLC operations (see, for example, the case of Sturm Development v. Harb
- LLCs in some states can be set up with only one natural person involved.
- Fewer risks are "stolen" by fire-selling acquisitions (more protection against "hungry" investors).
- For a real estate company, each separate property may be owned by each LLC, thereby not only protecting its owner but also other properties of cross-obligation.
Loss
Source of the article : Wikipedia
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