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Limited
Liability Company - LLC
In
General: Like a corporation,
an LLC is a separate and distinct legal entity. This
means that an LLC can obtain a tax identification
number, open a bank account and do business, all under
its own name. The existence of an LLC begins upon
the filing of the Articles of Organization with the
Secretary of State. The articles must be on the form
prescribed by the Secretary of State.
Limited
Liability: In an LLC, it’s owners,
known as members, are not personally liable for the
debts and liabilities of the LLC. For example, if
an LLC loses a big lawsuit and is forced into bankruptcy,
the members will not be required to make up the difference
with their own money.
Taxes:
An LLC can be taxed either as a "pass-through"
entity like a partnership,
or sole-proprietorship,
or as a corporation. If an LLC chooses to be taxed
as a pass-through entity (and most do), the owners
of the LLC are not subject to double taxation. This
is as opposed to a regular C-Corporation, which pays
a corporate tax on its net income (the first tax)
and then a second tax when the corporation distributes
profits, as the stockholders pay income tax on dividends.
Separate
Legal Entity: Like limited partnerships and
corporations, an LLC is recognized as a separate legal
entity from its "members."
Management
and control: Management and control of an
LLC is vested with its members unless the articles
of organization provide otherwise.
Profit
Allocation: An LLC may specially allocate
profits or losses in a different ratio than the members’
interest in profits, unless the articles of organization
or operating agreement provide otherwise. This may
be a big tax advantage to LLC’s where members’
contribute different amounts.
Operating
Agreement: To validly complete the formation
of the LLC, members must enter into an Operating Agreement.
This Operating Agreement may come into existence either
before or after the filing of the Articles of Organization.
Annual
Tax Filings: An LLC files its own annual
tax forms each year depending on how the LLC is treated
for tax purposes. Typically the LLC may file IRS forms
1065, 1120, 1120S, or schedule C. Requisite State forms may
also be required.
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