Limited Liability Companies (LLCs) Laws

Limited Liability Companies (LLCs) law enables the formation of a flexible business entity, which has the combined features of typical corporations and partnerships. Earlier, owners had to incorporate their company or enter partnerships to benefit from the limited liability feature. With LLCs, the owners have limited liability and greater flexibility compared to corporations and partnerships. They are great for businesses with single owners. However, based on the number of owners the LLCS can have the characteristics and elements of partnerships, sole proprietorships and corporations. Like corporations, the LLCs have limited liability feature. Like partnerships, the limited liability companies have taxation of pass-through income.
People having interests in the LLCs are called ‘Members’ and not ‘Shareholders.’ Every state in the United States has its own Limited Liability Companies (LLCs) law. Some states permit one member LLCs. Some states mandate minimum two members in an LLC. The registration documentation is called by different names in different states – Articles of Organization, Certificate of Formation or Certificate of Organization. There is the Uniform Limited Liability Company Act with default codes, which are recognized in many states.

Features of the Limited Liability Companies (LLCs) Laws

  • The Limited Liability Companies (LLCs) Law allows a LLC to be taxed as S-Corporation, C- Corporation, partnership, or sole proprietor.
  • Depending on the state laws, the LLC owners are protected from the LLC’s debts and acts legally.
  • LLCs enjoy automatic pass-through taxation, provided the owners have not opted for the LLCs to be taxed as C-Corporations.
  • Many states’ LLC laws treat LLCs independent of their owners.
  • The LLC’s income belongs to the owners and the profits will be taxed as their personal income.
  • The owners can opt for an operating agreement, which allows them to form their own governance rules and provisions.

Since the Limited Liability Companies (LLCs) Law differs from one state to another, it is essential that one understands the general and unique features of each state’s law to register one’s LLC in the state, which has the most feasible and flexible elements. As the rules for LLCs are not as controlled as the rules for general corporations in many states, it is essential that the owners adopt proper operating agreement that takes care of all aspects of the business.

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