What Is An LLC?

The Limited Liabilities Company format has its roots in European company structures that formed mainly in the late 1990s.  The original concept started in Germany and quickly caught on with other neighboring nations.  Here in the United States, the Limited Liabilities Company concept tumbled around for several years with different rules and regulations across states. In addition, the Internal Revenue Service flipped back and forth on Limited Liabilities Company regulations for several years. 

Finally there is some standardization as a result of the Uniform Limited Liability Company act that was passed in the late 1990s.  The main provision of the act was to deem multi member LLCs as partnerships and single member LLCs as sole proprietorships for tax purposes.  It should be noted that although this is the most popular type of new company structure, there are still differences in rules across states. 

There are several reasons to use the LLC style when creating a new company.  Some of the more significant ones include that as the name implies, a person or group using this type of structure has limited liability under the law.  Personal property of the individuals in the LLC agreement is not subject to loss in litigation against the company.  This includes non-resident aliens as potential members.  Another draw is that the structure is flexible in allowing an individual, group or trust to form a company all with the same benefits.  The structure also does not require equity of members.

 If one member or group puts in more capital or effort, they can receive a larger portion of the company’s profits.  These benefits are spelled out in the LLC’s operating agreement.  Another benefit is that there is no requirement for annual meetings or formal minutes to be kept for the company.  Another ec0onomic advantage is that the company’s taxes “pass-thru” the company to the individuals so that each member can realize their own profits and losses.  Related to this, the company does not file tax returns which can help reduce overhead and professional costs. 

Like any venture, there is considerable paperwork involved in forming and LLC.  One option would be to hire an attorney to complete the application for you.  This option usually is fairly expensive and there are other options.  This can be especially true for an individual or small group of investors.  This group is also often to be the ones most likely to need as much capital to invest into the company’s operations rather than on legal issues.  One option worth considering is to use an online incorporation service such as incfile.com.  Under this method, costs are usually much more reasonable.  Services such as incfile.com will complete the paperwork and file it with the appropriate agency in your state.

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