LIMITED LIABILITY COMPANIES (LLCs)
LLCs offer substantial flexibility and combine the liability protection of a corporation with the tax treatment of a partnership. For these reasons, LLCs are increasingly popular business entities.
The owners of an LLC are referred to as “members,” and there can be as few as one member. Unlike shareholders in a corporation, LLCs are not taxed as a separate business entity. Instead, all profits and losses are passed through the business to each member of the company. LLC members report profits and losses on their personal federal tax returns, just like the owners of a partnership would.
LLCs are formed by filing a simple certificate with the relevant state of formation and are governed by state law. Every LLC should have an operating agreement, in order to set out the parameters of the company and to supplement or alter the default rules set out in the applicable LLC laws.
The operating agreement has many roles. It defines the company’s management structure, describes how the company’s profits are allocated and distributed, and sets out the agreements among the company’s members. In many ways it is a combination of a corporation’s by-laws and a typical stockholders agreement.
Contact the attorneys at Abendroth Russell Barnett Law firm to help form your new limited liability company, or to review and update your existing operating agreement.