Forming A Limited Liability Company

2007-04-17 10:41:55

( Business )



A limited liability company is a kind of company offering limited liability. Since it blends certain characteristics of corporations and partnerships, forming a limited liability company provides you with the advantages of both.

In corporations, owners have protection from personal liability for business debts. Similarly, forming a limited liability company protects you from creditors running after your personal assets if your business is unable to pay. Limited liability prevents you from losing more than the amount you invested in the company. Insurance can also help you cover more ground, by protecting both your personal and corporate assets.

On the other hand, partnerships have simple tax systems, which have also been adopted by limited liability companies. For tax purposes, the limited liability company is known as a “pass-through entity” wherein the business revenues are stated by each owner on their income tax returns.

When forming a limited liability company, you and your co-owners would have to decide on the type of management is best for your limited liability corporation. There are two kinds: member management, wherein all of the owners participate in the management of the business in more or less the same amount; or manager management, wherein one owner becomes the foremost administrator and agent of the company.

Initially, you have to file your “articles of organization” with your state. You also have to form an operating agreement, wherein all the owners’ duties and privileges and shares in the company are outlined. Like any business, you should also register your business’s name and apply for a business license.

Technically, when a member leaves the limited liability company, either by choice, by disability or by death, the company is required to dissolve. This event can be prevented by stating in your operating agreement certain provisions that can address these situations.


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