Essentially,
a U.S. Limited Liability
Company (LLC) is a cross
between a corporation
(such as a UK “Ltd” or
Limited Company, German "GmbH" for Gesellschaft mit beschränkter Haftung or "Company with limited liability", French "SARL" (literally société à responsabilité limitée or Private Company) and a partnership.
The
state of Wyoming enacted
the first Limited Liability
Company Act in 1977.
Because of the uncertainty
of treatment by the
IRS, the Limited Liability
Company concept was
not widely accepted
at first. However,
in 1988 the IRS ruled
that the Limited Liability
Company, formed under
Wyoming Law was eligible
for pass-through tax
treatment, which then
removed the uncertainty
of the tax code.
Today,
all 50 states of the
United States have
a version of the Limited
Liability Company.
Here
are some facts about
forming a Limited Liability
Company over a Partnership
or Corporation:
*
In some states, a Limited
Liability Company requires
a minimum of two members,
while a corporation
may incorporate with
one shareholder.
* It is not advisable
to organize a Limited
Liability Company
with one member due
to negative tax treatment.
* A Limited Liability
Company is recognized
as a separate legal
entity from its members.
* In the majority of
cases, the Limited
Liability Company
alone is liable for
the company's debts
and other liabilities
and, therefore, grants
its
members
protection from the loss of personal assets.
* If any member of
the Limited Liability
Company gives personal
guarantees for the
debt of the company,
that member may be
called on to pay
a delinquent
debt.
* A Limited Liability
Company is not required
to hold regular meetings
of its members.
* Typically, management
and control of a
Limited Liability
Company is assumed
by its members and, therefore, does not require a Board of Directors.
* Voting rights usually
correspond directly
with a member's interest
in profits.
* Membership cannot
be transferred or new
members admitted without
the consent of the
majority interest.
* Traditionally, Limited
Liability Companies
have a limited life,
which is usually about
40 years or on the
death of a member.
* Limited Liability
Companies have a "pass-through" or "flow-through" taxation
status. In other words, the Limited Liability Company has no Tax Liability.
The profit is taxed when distributed to the members as personal income.
* A member may be
a non-resident
alien. This means
he does not pay
U.S. taxes on income
not derived in
the U.S. through
business or trade.
* Non-resident aliens
can fully own a
Limited Liability
Company
* A Limited Liability
Company is organized
when the Articles
of Organization
are filed with
the local
office of the Secretary-of-State.
* A Limited Liability
Company requires
an operating
agreement. An operating
agreement
may be verbal
or in writing.
* A Limited Liability
Company is
required to annually
file
form 1065 with
the IRS. Form
1065 is just
an informational
return which
sets
out the names
of
each member and his share in the profits or losses of the Limited
Liability Company.
The IRS reviews
this report
to in order to
ensure
that members
who are U.S. citizens properly report their income.
If
you would like more
information regarding
asset protection, trusts,
family limited partnerships
or the subject of this
article please call
or email our office.
