Limited liability company
Posted by admin under Liability
The limited liability company is not yet in our statute books. The limited liability company remains a pipe dream. Many parts of the world have relied on corporations and limited partnerships as conventional asset protection structures for a longtime.
In the 1970s, people began feeling restless and started looking for new legal devices that could offer them additional asset protection advantages. This collective yearning resulted in the genesis of the Limited Liability Company from liability.
Germany was perhaps the originator of a new legal structure. The Germans labeled it GmbH, essentially a cross between a corporation and a partnership. The emergence of this legal entity in Europe spurred its imitation in the United States in 1977. The Americans called this German invention Limited Liability Company. In 1988, the United States recognized this new legal structure and taxed it as a partnership. Starting with Wyoming and Florida, there are now over 46 states that have adopted this new device by 1995 including California.
The LLC is a legal structure that must comply with its statutory mandate. In general, filing the necessary papers with the Secretary of State forms the LLC. Ownership in the LLC is evidenced by an entry in the books of the company and not by certificates of stocks, unlike in corporations. The operation of the business is controlled through an “Operating Agreement” , instead of corporate minutes and bylaws. The potential double taxation that exists with a corporation is deflected because the taxable income or loss is reported on the tax returns of the owners.
It is generally more convenient to administer and maintain the LLC because the rigid requirements applied to corporations do not affect the LLC (i.e., the LLC has no formal hierarchy of directors and officers and the owners of the company have the discretion to manage the company and divide the earnings in any way they wish.) Just like a corporation and a partnership, the LLC has the power to sue and be sued. It can purchase, sell or own properties, and it can enter into contracts or conduct business. Anyone can be a member of the LLC, even a corporation, a natural person, a partnership, a trust or even another LLC.
The LLC has become one of the most popular entities in the United States because of its organizational flexibility It has the desirable characteristics of corporate limited liability with the tax breaks enjoyed by partnerships. Many experts consider the LLC as the best form of business organization. It is a way of avoiding double taxation because income is taxed only on the individual level. It is inexpensive to establish with little paperwork and record keeping chores. There is relative ease in converting any current business to an LLC with low annual have members. The member are the owners, the guys who run me show. The member Is more like being a partner, except that the member has no personal liability for the acts and obligations of the LLC . A with a partnership, there must be two or more individuals or legal entities involved.
For instance, the members of the LLC can be composed of two corporations, an individual and a corporation, two trusts, a partnership and a trust, or any other permutation imaginable . The LLC is a hybrid entity that possesses both corporate and partnership characteristics. It shields its officers and members from liabilities and lawsuits of the enterprise, but generally is treated as a partnership for income tax purposes ,
The LLC also represents a significant improvement over the partnership as an entity for doing business or holding assets. Doing business in partnership form exposes each of the partners to personal liability for all obligations of the partnership. Even with a limited partnership, there is still a general partner with unlimited liability for all of the debts of the partnership. In contrast, the LLC protects all of the owners of the business from liabilities associated with the company. None of the owners are personally responsible for any debts or claims against the business. As with a partnership, a creditor of a member of an LLC is not permitted to reach the assets of the LLC. Instead, the creditor is allowed to obtain a charging order against the members’ interest in the LLC. A creditor with a charging order would not become a member of the LLC and would not be entitled to vote or participate in management.
The IIC is an excellent alternative to a corporation to conduct your active business. The threat of double taxation is avoided and considerable flexibility and convenience can be achieved. Because the corporate formalities of minutes, bylaws, officers, directors, meetings etc. have been eliminated, it appears that a creditor of the LLC will not have the ability to “pierce the corporate veil” and establish personal liability on the part of the member of the LLC. For asset protection and estate planning purposes, an LLC can be used as the general partner of a family limited partnership. Instead of husband and wife serving as general partners, as in the usual case, an LLC composed of husband and wife would be the general partners of the family limited partnership. This technique would allow you to obtain the benefits of the family limited partnership without exposing either husband or wife as individual general partners, to the threat of lawsuits and the risk of personal liability for partnership debts. In the United States, there are limited liability partnerships (LLP) that are similar to LLCs but are available only to professionals. The LLP is thus an excellent option when professionals want to participate in the management of the practice while insulating personal assets from the partnership liabilities.