Articles of organization must be filed with the appropriate state to form an LLC. While an operating agreement does not have to be filed, it is an important document that should set forth the members’ rights and responsibilities, their share of ownership, their voting rights, their shares of profits and losses and their distribution rights, all of which can be different and without regard to their capital contribution.
One or more managers make management decisions and “run the business” for the inactive members.
As its name implies, an LLC provides the same limited liability for its members as does a corporation. Members enjoy limited liability for the debts, obligations and liabilities incurred by the business as well as liability stemming from possible legal action. Normally, members cannot lose more than the amount they invested in the LLC. If the LLC goes bankrupt, the members will not be liable for its debts. Should someone sue the LLC and it is found liable, they can take the LLC’s property to satisfy the judgment but if that property does not satisfy the judgment, they will not be able to take a member’s personal assets, i.e. home, car, a bank account. Protection of members’ personal assets is a major advantage of an LLC. An exception to a member’s limited liability happens when the corporation has recklessly harmed people or has been used to perpetuate a fraud.
LLC Taxation
An LLC can choose to be taxed as a corporation or choose the pass through tax structure of proprietorships, partnerships and S Corporations. And the distribution of profits and losses can differ from members’ share of ownership. While an LLC and an S Corporation are essentially alike, an LLC is much more flexible and is easier and less complicated to operate than a corporation.
Why Form an LLC?
For those who want the same limited liability as a corporation but without the formal structure and more cumbersome ongoing requirements, an LLC’s flexibility and simplicity offer a distinct advantage over a corporation. An S Corporation does, however, offer the advantage of allowing owners to minimize self employment taxes.
MaxFilings can help you form your LLC.
Some Points to Consider When Forming an LLC