Limited Liability Company

A Limited Liability Company, also known as an LLC, is a combination between a partnership and a Corporation in that it combines the "pass-through" treatment of a partnership with the limited liability of corporate shareholders.

A. Member Requirements

Most states require Limited Liability Companies to have two(2) or more members or owners, unlike Corporations that can have as few as one(1) shareholder.

B. Legal Status

A Limited Liability Company is recognized as a separate legal entity from it's members just as Corporations and Limited Partnerships.

C. Limited Liability

Generally, the Limited Liability Company is responsible for it's own debt, thus protecting the members from individual liability. Although, there may be some exceptions where the individual members may be held responsible for the company's debt.

D. Guarantor Liability

If a Limited Liability Company's member has personally guaranteed an obligation for the Limited Liability Company, they may be held liable for that debt. All new business have no credit history, therefore most creditors require one or more of the members to personally guarantee the debt. For example, if a company is purchasing a piece of equipment, chances are the finance company will require the member(s) to personally guarantee the purchase.

E. Alter Ego Liability

Courts may rule that the corporation is an "alter ego" of it's shareholders, therefore holding the shareholders responsible for it's debt. This same ruling can be imposed on Limited Liability Companies, therefore holding the members responsible for the company's debt. Corporations that do not conduct shareholders or directors meetings may subject themselves to "alter ego" rulings. Although, if the Limited Liability Company's Operating Agreement or Articles of Organization do not require such meetings, the failure to have these meetings usually does not subject the company to the "alter ego" rulings.

F. Management

Management of a Limited Liability Company is performed by it's members unless otherwise indicated within it's Operating Agreement or Argicles or Organization.

G. Transferability

No one can become a member of a Limited Liability Company without the consent of the members having a majority interest unless otherwise indicated within the Articles or Organization. This includes new memberships and the transfer of existing memberships.

H. Duration

The existence of a Limited Liability Company is perpetual. Usually, the Articles of Organization or the Operating Agreement will indicate the date upon which the Limited Liability Company will dissolve. If no such date is indicated, the Limited Liability Company will dissolve upon death, withdrawal, resignation, expulsion, or bankruptcy of a member unless within ninety(90) days a majority in both the profits and capital interest vote to continue the Limited Liability Company.

I. Formalities

A Limited Liability Company becomes in existence upon the filing of the Articles of Organization with the Secretary of State on the form provided by the state. Required information on the form includes the dissolution date of the Limited Liability Company and whom the Limited Liability Company will be managed by, member(s) or manager(s). An Operating Agreement, verbal or written, must come into existence, either before or after filing the Articles of Organization, in order for the Limited Liability Company to be valid.

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