Limited Liability-What Does It Really Mean?
As a business owner, you are faced with numerous decisions one of which concerns the formation of your company. One option American business owners have is to form a limited liability company or LLC. This type combines many elements of a corporation and a partnership, but is not either one.
In an LLC, the owners are called members and are not shareholders or partners. These members can be made up of an unlimited number of individuals, corporations, or even other LLC’s. An LLC has the same liability protection that a corporation does. Members are not liable for debts incurred unless they have made a personal guarantee. An LLC can determine its own division of profits among the members, unlike a partnership that is 50/50.
An LLC is easier to operate since it is not required to conduct meetings, maintain minutes, or record problem solutions. This is required of a corporation.
An LLC is taxed on a “pass-through” or “flow-through” taxation method, which means that the LLC is not taxed on its profits, losses, or expenses. This “flows-through” to the members, thus avoiding the double taxation of corporation taxes and individual taxes. This is a big plus for U.S. non-residents because the LLC is not taxed and the members can only be taxed on profits made in the U.S.
A corporation can exist forever, but an LLC is limited to the life of its members, or the time of bankruptcy at which time it is dissolved.
Each state allows for the formation of an LLC. Many law offices are capable of assisting in the process, but it can be done on your own. Each state requires that an “Articles of Organization” be filed. The state will then prepare an “Operation Agreement” which must then be signed and returned. Each state has its own individual rules and regulations.
In determining if forming a Limited Liability Company is for you, look at the type of company you want, and what you want it to become. It is recommended that you seek both legal and tax advice and assistance in making your final business formation decisions.
In an LLC, the owners are called members and are not shareholders or partners. These members can be made up of an unlimited number of individuals, corporations, or even other LLC’s. An LLC has the same liability protection that a corporation does. Members are not liable for debts incurred unless they have made a personal guarantee. An LLC can determine its own division of profits among the members, unlike a partnership that is 50/50.
An LLC is easier to operate since it is not required to conduct meetings, maintain minutes, or record problem solutions. This is required of a corporation.
An LLC is taxed on a “pass-through” or “flow-through” taxation method, which means that the LLC is not taxed on its profits, losses, or expenses. This “flows-through” to the members, thus avoiding the double taxation of corporation taxes and individual taxes. This is a big plus for U.S. non-residents because the LLC is not taxed and the members can only be taxed on profits made in the U.S.
A corporation can exist forever, but an LLC is limited to the life of its members, or the time of bankruptcy at which time it is dissolved.
Each state allows for the formation of an LLC. Many law offices are capable of assisting in the process, but it can be done on your own. Each state requires that an “Articles of Organization” be filed. The state will then prepare an “Operation Agreement” which must then be signed and returned. Each state has its own individual rules and regulations.
In determining if forming a Limited Liability Company is for you, look at the type of company you want, and what you want it to become. It is recommended that you seek both legal and tax advice and assistance in making your final business formation decisions.
posted by Offshore company formation at 8:44 AM
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