Advantages of forming
In general: An
LLC is a hybrid between a partnership and a Corporation in that it combines
the "pass-through" treatment of a partnership with the limited liability
accorded to corporate shareholders.
Two members required:
Unlike a corporation which can have as few as one shareholder, most states
require that an LLC consist of two or more members (owners). Recently,
however, more states are allowing single-member LLCs. Please note,
however, that the IRS may treat a single person LLC differently than an
LLC with more than one member.
Entity: Like limited partnerships and corporations, an LLC is recognized
as a separate legal entity from its "members."
Ordinarily, only the LLC is responsible for the company's debts thus shielding
the members from individual liability. However, there are some exceptions
where individual members may be held liable:
Where an LLC member has personally guaranteed the obligations of the LLC,
he or she will be liable. For example, where an LLC is relatively new and
has no credit history, a prospective landlord about to lease office space
to the LLC will most likely require a personal guarantee from the LLC members
before executing such a lease.
Alter Ego Liability:
Very similar to the judicial doctrine applied to corporations where a court
may hold the individual shareholders liable where the business entity is
merely the "Alter Ego" of its shareholders, a member of an LLC may also
be held liable for the LLCs debts if the court imposes its "alter ego liability"
Please note, however,
that although a corporation's failure to hold shareholder or director meetings
may subject the corporation to alter ego liability, this is not the case
for LLCs in California. An LLC's failure to hold meetings of members or
managers is not usually considered grounds for imposing the alter ego doctrine
where the LLC's Articles of Organization or Operating Agreement do not
expressly require such meetings.
control: Management and control of an LLC is vested with its members unless
the articles of organization provide otherwise.
Ordinarily, voting interest directly corresponds to interest in profits,
unless the articles of organization or operating agreement provide otherwise
No one can become a member of an LLC (either by transfer of an existing
membership or the issuance of a new one) without the consent of members
having a majority in interest (excluding the person acquiring the membership
interest) unless the articles of organization provide otherwise.
Although many states now allow an LLC to have a perpetual existence, LLC's
traditionally were required to specify the date on which the LLC's existence
will terminate. In most cases, unless otherwise provided in the articles
of organization or a written operating agreement, an LLC is dissolved at
the death, withdrawal, resignation, expulsion, or bankruptcy of a member
(unless within 90 days a majority in both the profits and capital interests
vote to continue the LLC).
existence of an LLC begins upon the filing of the Articles of Organization
with the Secretary of State. The articles must be on the form
prescribed by the Secretary of State. Among the required information on
the form is the latest date at which the LLC is to dissolve and a statement
as to whether the LLC will be managed by one manager, more than one manager,
or the members.
To validly complete
the formation of the LLC, members must enter into an Operating Agreement.
This Operating Agreement may come into existence either before or after
the filing of the Articles of Organization and may be either oral or in
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