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303-322-0846 Español:
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WHAT IS A LIMITED LIABILITY COMPANY? A
limited liability company (LLC) is a relatively new way of doing business. A
limited liability company is an unincorporated association formed to carry on
some kind of business or investment activity. A limited liability company
falls somewhere between a partnership and a corporation. This type of entity
or business organization gives the same limited liability enjoyed by
corporations and limited partnerships without many, if not most, of the
records and meeting requirements of the forms of limited organizations. An LLC has
the characteristics of both a partnership and a corporation. Filing Articles
of Organization with the Secretary of State forms it. Since the filing
requirements provides only minimum information about the company being formed
(Name, Address, Duration, Registered Agent, Purpose, etc.) there is a need
and / or requirement for anther related document call the Operating Agreement
(OA) or the Articles of Operation. These are much like a partnership
agreement or corporate bylaws. The OA contains the agreements of the LLC's
mangers and members as to the allocation between the parties involved. The
Articles of Operation are the heart of the LLC. LIMITED LIABILITY COMPANY TERMS & CONCEPTS 1. Articles of Organization- the document filed with the
Secretary of State to activate the limited company. The name for the company,
like the name for a corporation, must be unique, it must not be the name used
by another company in the state. 2. Operating Agreement or
Articles of Operation- this document describes the procedures to be used in running the
business and any special provisions for the distribution of profits, losses
and other company assets, credits, etc. 3. Interest- the ownership in a limited
liability company is known as an interest. Interests
in any specific LLC may have different rights and/or duties, however, usually
all interests will have the same rights and duties as defined by the
Operating Agreement. 4. Member- the holder of an interest in a
Limited Liability Company is referred to as a "member." Owners are
referred to as members instead of shareholders or partners. A member can by
any type of "person" (natural or otherwise). Thus a member can be
an individual, partnership, a corporation, a trust, etc. 5..Manager- a manager is a person who mayor
may not be a member of the LLC The manager or managers are appointed by the
members(s) and have the power and authority to manage the day-to-day business
affairs of the LLC. 6. Capital Contribution- the member's capital
contribution is the contribution of cash, property or services (past.
present, or future), which are given or provided the limited liability
company in return for. the member's respective "interests," 7. Liability of Debts- under normal circumstances neither
members nor managers are liable for the LLC debts or liabilities. A member's
liability to the LLC is usually limited to any unpaid capital contributions.
If a creditor requires a personal guarantee of and LLC debt, the personal
guarantee would make the guaranteeing member liable for the debt in case of
an LLC default. 8. Dissolution- the limited liability company
will usually be dissolved upon the occurrence of any of the following:
expiration of the fixed life as established in the Articles of Organization,
unanimous written agreement of all members, or the death, retirement,
resignation, expulsion, bankruptcy, Of'" dissolution, or any other
occurrence of event of any of these latter items, any remaining member(s) may
elect to continue the LLC. 9. The Operating Agreement
governs transfer of Interest- the right to transfer an LLC interest. This usually
provides that transfer of an interest to an outside person will not
automatically make the new owner a member of the LLC. The new owner would
become a new member only with unanimous approval of the remaining members.
Any transfer not so approval would make the new owner "Assignee."
the Assignee does not have the voting or management rights of the member but
would be entitled to any distributions which would have gone to the former
member. BENEFITS OF THE LIMITED LIABILI'IY COMPANY Limited Liability: the limited liability statutes
provide that neither members nor managers are liable for the debts,
obligations or other liabilities of the LLC, even if those liabilities arise
by judgment, decree, or court order, or in any other manner. These limits are
even more stringent that those for corporations OT limited partnerships.
These Limited liability provisions are intended to protect members and
managers form liability merely by reason of the being members or managers. To
date there has been no instances of piercing of the limited liability shield
of any liability company. Business Entity Formalities: like partnerships and unlike
corporations there are no required "regular" activities needed.
Once the Operating Agreement has been completed there are no requirements to
hold meetings, keep meeting minutes, etc. In cases where there are two or
more members it would be good business practice to have regular meetings or
at least give your member reports on the business activates at regular
intervals. There remains one activity, which must be taken care of. Every
other year the Secretary of State requires a report to be filed as to the
status of the LLC, and payment of a fee. There
are no minimum capitalization requirements as in the case of corporations,
which may be too thinly capitalized, which could cause problems with the IRS
or creditors. There is no requirement that the LLC keep separated books of account
from the members. In practice, separate books of account should be kept so
that creditors of a member could not make the presumption that funds in the
LLC account are in fact those of the member. Choice of Income Tax
Classification: due
to the Internal Revenue's "Check the Box: regulations, there is no
longer confusion as to how an LLC will be taxed as an entity. For income tax
purposes an LLC may be treated as a Sole Proprietorship, a partnership, a
regular corporation, or an "S" corporation. A single member limited
liability company will be classified as a sole proprietorship unless the
member file!> a form with the IRS asking to be treated as one or the other
corporate forms. Likewise a two member LLC will be automatically be
classified as a partnership unless the member tiles the form to elect
corporate. |
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