| Limitations On Amount of Monthly Benefits, Limitations, Limit, Per Person | |
| Limited Partnership, Limited Payment Life Insurance, Limited Policy |
| Limited Liability, Like-Kind Property | |
| Limited Partnership, Limited-Service Option |
The Limited Liability Company (LLC), a hybrid of the partnership and the corporation, has become a popular legal alternative for business owners. Now available in almost all states, the LLC combines the benefits of limited liability and pass through taxation, much like an S corporation. But the LLC's legal structure is much looser, allowing many companies that find S corporation status too restrictive to take advantage of its benefits. Small business owners are taking advantage of the LLC because it is easier to set up and maintain than a corporation.
Because the LLC is a fairly new option in the United States (it first became available in Wyoming in 1977, but most other states did not follow suit until the 1990s), the laws governing this business form are largely uninterpreted by court cases. In addition, each state has its own statutes concerning LLCs. Therefore, learning and keeping up with the laws that govern LLCs, which are still being fine-tuned, can be a tricky business. When considering the LLC option, consulting knowledgeable and up-to-date legal and tax advisors is a must.
Advantages of Forming an Llc
LIMITED LIABILITY. Like corporations, the LLC provides its members (owners) with protection from being personally responsible for the debt liabilities of the company. Members are only liable to the extent of their investments in the company. If a customer slips and is injured on company property, a law suit may still bankrupt the business, but it cannot touch the personal assets of the LLC's members. This limited liability, then, is a great advantage over partnerships. In general partnerships, all members are liable for the company's debts, and in a limited partnership, at least one member must still be liable.
AVOIDING DOUBLE TAXATION. Like S corporations, LLC's enjoy exemption from the double taxation required of C corporations. In other words, the LLC's profits pass through to the company's members, who report their share of the profits on their personal federal tax returns. The company itself does not pay a federal tax before the money is distributed to the members, as in the case of C corporations. But state and local taxes may still be levied against the LLC.
FLEXIBILITY OF INCOME DISTRIBUTION. One of the biggest benefits that small businesses enjoy when choosing LLC status, according to Fred Steingold, author of The Legal Guide for Starting and Running a Small Business, is that it is "easier to allocate profits and losses for tax purposes." Whereas the amount of profits the S corporation's shareholders report on their federal tax returns must be proportional to their share of stock, an LLC's members can determine amongst themselves how to divide their income as long as they follow the Internal Revenue Service's rules on partnership income distribution.
SIMPLICITY. Another great advantage of LLCs over corporations is the ease of setting up and running one. Whereas incorporation can be an involved and costly process, all that is required to start an LLC is the filing of an Articles of Organization and the drafting of an Operating Agreement defining the company's policies and procedures (a filing fee, though, will still be required of LLCs). And whereas a corporation requires a board of directors, officers, and regular shareholders' and directors' meetings, an LLC is not required to observe such formalities in its operation. An LLC can be run from day to day essentially as if it were a partnership.
NO OWNERSHIP RESTRICTIONS. The biggest drawback of forming an S corporation—the restrictions on the type and number of shareholders the corporation may have—is avoided by forming an LLC. The members of an LLC may be foreign nationals or other companies, both of which are prohibited from owning stock in an S corporation. In addition, there is no limit on the number of members an LLC may have, as there is with an S corporation.
MEMBER INVOLVEMENT IN THE COMPANY. One problem with limited partnerships is that those partners who wish to protect themselves with limited liability (which may be all but one of the members) are prohibited from direct involvement in running the company. These partners may have only a financial investment in the firm. All members of an LLC may be directly involved in the company's management without jeopardizing their limited liability.
ATTRACTIVE TO FOREIGN INVESTORS. Because LLCs have been in existence in Europe and Latin America for over a century, investors from those parts of the world are particularly knowledgeable about this business form. According to The Essential Limited Liability Handbook, "LLCs often prove to be the most familiar and least imposing business structure for foreign entrepreneurs who wish to enter the American market."
Drawbacks of Forming an Llc
NEWNESS. LLCs are still a very new option in most states (only Wyoming and Florida had LLC statutes on the books prior to the 1990s). This means that the statutes governing the establishment of LLCs are still evolving. And there is virtually no case history in the courts to indicate how these laws will be interpreted. The Internal Revenue Service is also still working out its position concerning LLCs, so it will be imperative for small business owners to solicit legal and tax advice on the current laws before making a decision about whether or not to form an LLC. And because the laws may change while the LLC is in existence, it will be important to keep on top of the developments in LLC statutes to determine whether it remains in the company's best interests to operate as an LLC.
INTERSTATE BUSINESS MORE COMPLICATED. Laws governing LLCs can vary widely from state to state, complicating the conduct of business across state lines. There are, as of yet, no uniform laws concerning LLCs, so an even greater knowledge of the state laws will be required of the company that does business in more than one state.
NO PERPETUAL EXISTENCE. Most states require that an LLC's Operating Agreement set a limit to the company's existence (usually 30 years). And in the absence of a clause in the Operating Agreement providing for the continuance of the LLC in the event of the death or withdrawal of a member, the LLC will cease to exist when such events occur. The transfer of ownership is also more restricted for an LLC (like a partnership) than for a corporation.
Creating an Llc
It is important that the organizer(s) of a prospective LLC follow the "enabling statutes" or formation laws of the state in which the company will be formed in order to be designated as an LLC. Without this designation, the company will lack the protection of limited liability and will be treated as a general partnership. Therefore, the first step in creating an LLC is to find out your state's specific enabling statutes.
The organizer does not have to be one of the company's members. The organizer's function is to file the articles of organization, a task which can be accomplished by a lawyer, a hired agent from a service company specializing in such business, or a manager of the prospective company.
NAMING AN LLC. Before forming an LLC, the company name must be reserved with the secretary of state or its equivalent. Most states require that the words "Limited Liability Company" or the abbreviation "LLC" be included in the name of the company. In some states, "Limited Company" or "LC" is the preferred designation. In all states, though, the name of the LLC must not resemble the name of any other corporation, LLC, partnership, or sole proprietorship that is registered with the state.
THE ARTICLES OF ORGANIZATION. This form, called the articles of organization or certificate of formation, must be obtained from the secretary of state's office or its equivalent, filled out by the organizer(s), and filed with the same office. A filing fee, which varies from state to state, will also be charged. This simple document requires, at minimum, the company name and address, a description of the business to be conducted, the name and address of the registered agent (the contact to whom notices of lawsuit or other official matters can be served), the names of the company's members and managers (usually the members themselves), and the dissolution date. Other information may be required, depending on which state the articles of organization are filed in. It is important that the articles describe the business in a way that will allow the Internal Revenue Service to designate the company a partnership for tax purposes, and not a corporation. In order for the I.R.S. to do so, the articles must show that the company possesses no more than two of the following four characteristics (which describe a corporation):
One of the easiest ways to show that the LLC is not a corporation is to limit its existence. In fact, most states require that a dissolution date be determined in the articles of organization. On this date the LLC's assets will be liquidated and its business will cease (occurrences such as the mutual written agreement of the members or the death or retirement of a member may also terminate the LLC's existence before the dissolution date). If no date is specified, a default period of usually 30 years will be enacted. However, the members may decide to continue the LLC's existence at a later date.
FEES. Filing fees vary from state to state, from $50 to $500. In addition, some states require the LLC to publish an announcement of its creation to the public in a generally circulated newspaper. This latter requirement can be very expensive, ranging from $500 to $2,000.
THE OPERATING AGREEMENT. At the first meeting of the members, called the organizational meeting, an operating agreement should be drafted. Although each state has laws governing how LLC's should be operated, the members should create their own operating agreement to document that all members agree on how the company should be run. It should be carefully constructed with an eye to preventing future disagreements and deadlocks. Most basically, the agreement should address the division of profits, members' voting rights, and company management. A good operating agreement will address the following issues:
Further Reading:
Borofsky, Jeffrey Mark. "Converting a Corporation to an LLC." CPA Journal. March 1998.
Byrd, Stephen, and Brett Richey. "The Choice of Entity for the Small Business Owner." Mid-Atlantic Journal of Business. December 1, 1998.
Damman, Gregory C. How to Form and Operate a Limited Liability Company: A Do-it-Yourself Guide. Self-Counsel Press, 1995.
The Essential Limited Liability Handbook. Oasis Press, 1995.
Friedman, Scott E. How to Profit by Forming Your Own Limited Liability Company. Upstart, 1995.
Handmaker, Stuart A. Choosing a Legal Structure for Your Business. Prentice Hall, 1997.
Mancuso, Anthony. Form Your Own Limited Liability Company. Nolo Press, 1996.
Shenkman, Martin M., Samuel Weiner, and Ivan Taback. Starting a Limited Liability Company. Wiley, 1996.
A noncorporate business whose owners actively participate in the organization's management and are protected against personal liability for the organization's debts and obligations.
The limited liability company (LLC) is a hybrid legal entity that has characteristics of a corporation and a partnership. An LLC provides its owners with corporate-like protection against personal liability. It is, however, usually treated as a noncorporate business organization for tax purposes.
History
The LLC is a relatively new business form in the United States, although it has existed in other countries for some time. In 1977 Wyoming became the first state to enact LLC legislation: it wanted to attract capital and created the statute specifically for a Texas oil company (W.S. 1977 § 17-15-101 et seq., Laws 1977, ch. 158 § 1). Florida followed with its own LLC statute in 1982 (West's F.S.A. § 608.401, Laws 1982, c. 82-177 § 2). At this point states had little incentive to form an LLC because it remained unclear whether the Internal Revenue Service (IRS) would treat an LLC as a partnership or as a corporation for tax purposes. In 1988 the IRS issued a ruling that an LLC in Wyoming would be treated as a partnership for tax purposes. This allowed the taxable profits and losses of an LLC to flow through to the LLC's individual owners; unlike a typical corporation, an LLC would not be taxed as a separate business organization. After the 1988 IRS ruling, nearly every state in the United States enacted an LLC statute, and the LLC is now a widely recognized business form. Many legal issues concerning the LLC are still developing.
Formation
State law governs the creation of an LLC. Persons form an LLC by filing required documents with the appropriate state authority, usually the secretary of state. Most states require the filing of articles of organization. These are considered public documents and are similar to articles of incorporation, which establish a corporation as a legal entity. The LLC usually comes into existence on the same day the articles of organization are filed and a filing fee is paid to the secretary of state.
The minimum information required for the articles of organization varies from state to state. Generally, it includes the name of the LLC, the name of the person organizing the LLC, the duration of the LLC, and the name of the LLC's registered agent. Some states require additional information, such as the LLC's business purpose and details about the LLC's membership and management structure. In all states an LLC's name must include words or phrases that identify it as a limited liability company. These may be the specific words Limited Liability Company or one of various abbreviations of those words, such as LLC or Ltd. Liability Co.
Structure
The owners of an LLC are called members and are similar in some respects to shareholders of a corporation. A member can be a natural person, a corporation, a partnership, or another legal association or entity. Unlike corporations, which may be formed by only one shareholder, LLCs in most states must be formed and managed by two or more members. LLCs are therefore unavailable to sole proprietors. In addition, unlike some closely held, or S, corporations, which are allowed a limited number of shareholders, LLCs may have any number of members beyond one.
Generally, state law outlines the required governing structure of an LLC. In most states members may manage an LLC directly or delegate management responsibility to one or more managers. Managers of an LLC are usually elected or appointed by the members. Some LLCs may have one, two, or more managers. Like a general partner in a limited partnership or an officer in a corporation, an LLC's manager is responsible for the day-to-day management of the business.
A manager owes a duty of loyalty and care to the LLC. Unless the members consent, a manager may not use LLC property for personal benefit and may not compete with the LLC's business. In addition, a manager may not engage in self-dealing or usurp an LLC's business opportunities, unless the members consent to a transaction involving such activity after being fully informed of the manager's interest.
Operating Agreement
Nearly every LLC maintains a separate written or oral operating agreement, which is generally defined as the agreement between the members that governs the affairs of the LLC. Some states call an operating agreement regulations or a member control agreement. Although some states do not require an operating agreement, nearly all LLCs create and maintain a written document that details their management structure.
The operating agreement typically provides the procedures for admitting new members, outlines the status of the LLC upon a member's withdrawal, and outlines the procedures for dissolution of the LLC. Unless state law restricts the contents of an operating agreement, members of an LLC are free to structure the agreement as they see fit. An LLC can usually amend or repeal provisions of its operating agreement by a vote of its members.
Membership Interests
A member of an LLC possesses a membership interest, which usually includes only an economic interest. A membership interest is considered personal property and may be freely transferred to nonmembers or to other members. The membership interest usually does not include any right to participate in the management of the LLC. Accordingly, if a member assigns or sells a membership interest to another person, that other person typically receives only the right to the assigning member's share of profits in the LLC. Persons who receive a membership interest are not able to participate as voting members or managers unless they are admitted as new members.
State law and an LLC's operating agreement or articles of organization provide the circumstances under which a person may be admitted as a new member. These circumstances vary. Usually the admission of a new member requires the consent of existing members, and in most cases the consent must be unanimous. In some cases the articles of organization do not allow for admission of new members. In others the recipient of a membership interest may be automatically admitted as a new member.
Member Contributions
Members of an LLC contribute capital to the LLC in exchange for a membership interest. There is no minimum amount of capital contribution, and members usually can contribute cash, property, or services. By default, the total amount of a member's capital contribution to an LLC determines the member's voting and financial rights in the LLC. In other words, unless an LLC's operating agreement provides for a different arrangement, the profits and losses of the LLC are shared proportionally in relation to the members' contributions to the LLC. For example, if a member's capital contributions constitute 40 percent of an LLC's capital, that member typically has a 40 percent stake in the LLC and has more voting power than a member with a 20 percent interest.
A member may promise a future contribution to an LLC in exchange for a membership interest. If the member later fails to make the contribution, the LLC generally may enforce the promise as a contract or sell the member's existing interest to remedy the failure.
Distributions of profits or assets to members are usually governed by an LLC's operating agreement. Most state LLC laws do not require distributions to members other than when a member withdraws or terminates membership. Members vote to determine all aspects of distributions to members, including amount and timing. Because a member's share of any distribution or loss depends on the member's share of all capital contributions to an LLC, the LLC maintains records of each member's capital contribution.
Liability
State LLC statutes specifically provide that members of an LLC are not personally liable for the LLC's debts and obligations. This limited liability is similar to the liability protection for corporate shareholders, partners in a limited partnership, and partners in a limited liability partnership. Under certain circumstances, however, a member may become personally liable for an LLC's debts.
An individual member is generally personally liable for her own torts and for any contractual obligations entered into on behalf of the member and not on behalf of an LLC. In addition, a member is personally liable to a third person if the member personally guarantees a debt or obligation to the third person. A person who incurs debts and obligations on behalf of the LLC prior to the LLC's formation is jointly and severally liable with the LLC for those debts and obligations.
Members may also become personally liable for an LLC's debts or obligations under the "piercing-the-corporate-veil" theory. This doctrine imposes personal liability upon corporate shareholders and applies primarily if a corporation is undercapitalized, fails to follow corporate formalities, or engages in fraud. Although the law of LLCs is still developing, piercing the corporate veil is likely applicable to an LLC that fails to follow the legal formalities required to manage the LLC. LLC statutes in Colorado, Illinois, and Minnesota specifically apply the corporate veil-piercing theory to LLCs.
A member is generally considered an agent of an LLC and thus may bind the LLC for the debts and obligations of the business. When a member has apparent or actual authority and acts on behalf of an LLC while carrying on the usual business of the LLC, the member binds the LLC. If a third person knows that the member is not authorized to act on behalf of the LLC, the LLC is generally not liable for the member's unauthorized acts. Some states also limit a member's authority to act as an agent of an LLC.
Records and Books
Many LLC statutes require an LLC to maintain sufficient books and records of its business and management affairs. This requirement varies from state to state. The books and records generally detail the members' contributions to the LLC, the LLC's financial and tax data, and other financial and management information. Like a partnership's books, an LLC's books generally must be kept at the LLC's principal place of business, and each member must have access to and must be allowed to inspect and copy the books upon reasonable demand.
Taxation
The IRS generally treats an LLC as a partnership for federal income tax purposes. The LLC's members are taxed only on their share of LLC profits. Any gains, losses, credits, and deductions flow through the LLC to the members, who report them as income and losses on their personal tax return. The LLC is not taxed as a separate entity unless it fails to qualify as a partnership for tax purposes.
The IRS will examine a state's LLC statute and an LLC's operation to determine whether the LLC qualifies as a partnership for tax purposes. Essentially, if the IRS determines that the LLC resembles a corporation more than a partnership, the LLC may not qualify as a partnership for tax purposes. Under IRS regulations, an LLC must lack two of four recognized corporate characteristics before it will be treated as a partnership for tax purposes. These characteristics are limited liability, centralized management, free transferability of interests, and continuity of life. Because every LLC protects its members' liability, an LLC almost always possesses the characteristic of limited liability. Therefore, the IRS's analysis usually focuses on the last three characteristics.
Centralized Management
A business organization has centralized management when one or more persons have exclusive authority to manage its day-to-day conduct. Most LLCs lack the corporate characteristic of centralized management because most state LLC statutes provide that members manage the LLC directly, and LLCs that do not have separate managers lack the corporate characteristic of centralized management. However, some states require LLCs to have one or more managers to manage the LLC. If an LLC's operating agreement or articles of organization require each and every member to be a manager, the LLC likely lacks the corporate characteristic of centralized management. If, on the other hand, the members designate nonmembers to manage the LLC or designate member-managers who do not own a substantial portion of the LLC's membership interests, the LLC may possess the corporate characteristic of centralized management.
Free Transferability of Interests
A business form possesses free transferability of interests when one of its owners essentially has the power to substitute another person as a new owner of the business. Most corporate shareholders, for example, may sell their shares freely and thereby transfer their ownership interest to another person, without the consent of other shareholders. A member in an LLC, however, generally may not substitute another person as a new member unless the existing members agree to the substitution. A member typically has the power only to assign his economic rights in an LLC. Thus, members of an LLC lack the ability to freely transfer substantially all of their interest in the LLC.
Continuity of Life
Continuity of life essentially means perpetual continuation without regard to the withdrawal, expulsion, or death of any member. Most state LLC statutes provide for the dissolution of an LLC upon the death, disability, bankruptcy, or withdrawal of a member. Accordingly, most LLCs lack the corporate characteristic of continuity of life, unless their operating agreement substantially changes the effect of a member's withdrawal upon the continued existence of the LLC. Many state LLC statutes also limit the duration of an LLC to thirty years, but this limitation does not affect the IRS's determination of whether an LLC lacks continuity of life.
Member Withdrawal
Members may withdraw from an LLC unless the operating agreement or articles of organization limit their ability to do so. A member must usually provide to the LLC written notice that she intends to withdraw. If a withdrawal violates the operating agreement, the withdrawing member may be liable to the other members or the LLC for damages associated with it. State law frequently sets forth the circumstances under which a member may withdraw from an LLC. In many states a member may withdraw only if she or he provides six months' written notice of the intent to withdraw. In a few states, an LLC cannot prevent a member's withdrawal.
A member who withdraws is usually entitled to a return of his capital contribution to an LLC, unless the withdrawal is unauthorized. Some LLCs instead pay a withdrawing member the fair market value of his or her membership interest. The operating agreement typically provides for the method and manner of payment of a withdrawing member's interest. State law also governs those issues.
Dissolution
Dissolution means the legal end of an LLC's existence. In most states an LLC legally dissolves upon the death, disability, withdrawal, bankruptcy, or expulsion of a member. These occurrences are generally called disassociations. Other circumstances that bring about dissolution include bankruptcy of the LLC, a court order, or the fulfillment of the LLC's stated period of duration.
Most states provide for the continuation of an LLC after the disassociation or withdrawal of a member. Continuation after a member's disassociation usually requires the remaining members' unanimous consent. Some states require that the articles of organization or operating agreement allow for the continuation of the business after a member's disassociation. Some states allow an LLC's articles of organization or operating agreement to require the continuation of the business after a member's dissociation even if the remaining members do not provide unanimous consent.
If an LLC dissolves, state law and the LLC's operating agreement usually outline the process for winding up the LLC's business. In this process the LLC pays off its remaining creditors and distributes any remaining assets to its members. The LLC's creditors receive priority. Although members may be creditors, they are not creditors in determining the members' distributive shares of any remaining assets. After the LLC pays off its creditors, and only then, it distributes the remaining assets to its members, either in proportion to the members' shares of profits or under some other arrangement outlined in the operating agreement. After an LLC winds up its business, most states require it to file articles of dissolution.
A corporate structure whereby the shareholders of the company have a limited liability to the company's actions.
Investopedia Says:
Basically, an LLC is a hybrid between a partnership and a corporation.
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A limited liability company (LLC) is a flexible form of enterprise that blends elements of partnership and corporate structures. It is a legal form of company that provides limited liability to its owners in the vast majority of United States jurisdictions. LLCs do not need to be organized for profit.[citation needed]
Often incorrectly called a "limited liability corporation" (instead of company), it is a hybrid business entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are). An LLC, although a business entity, is a type of unincorporated association and is not a corporation. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. It is often more flexible than a corporation, and it is well-suited for companies with a single owner.
LLC members are subject to the same alter ego piercing theories as corporate shareholders. However, it is more difficult to pierce the LLC veil because LLCs do not have many formalities to maintain. So long as the LLC and the members do not commingle funds, it would be difficult to pierce its veil.[1] Membership interests in LLCs and partnership interests are also afforded a significant level of protection through the charging order mechanism. The charging order limits the creditor of a debtor-partner or a debtor-member to the debtor’s share of distributions, without conferring on the creditor any voting or management rights.[2] Limited liability company members may, in certain circumstances, also incur a personal liability in cases where distributions to members render the LLC insolvent.[3]
The phrase "unless otherwise provided for in the operating agreement" (or its equivalent) is found throughout all existing LLC statutes and is responsible for the flexibility the members of the LLC have in deciding how their LLC will be governed (provided it does not go outside legal bounds). State statutes typically provide automatic or "default" rules for how an LLC will be governed unless the operating agreement provides otherwise.
Similarly, the phrase “unless otherwise provided for in the by laws” is also found in all corporation law statutes but often refers only to a narrower range of matters.
For U.S. federal income tax purposes, an LLC is treated by default as a pass-through entity.[4] If there is only one member in the company, the LLC is treated as a “disregarded entity” for tax purposes, and an individual owner would report the LLC’s income or loss on Schedule C of his or her individual tax return. The default tax status for LLCs with multiple members is as a partnership, which is required to report income and loss on IRS Form 1065. Under partnership tax treatment, each member of the LLC, as is the case for all partners of a partnership, annually receives a Form K-1 reporting the member's distributive share of the LLC's income or loss that is then reported on the member's individual income tax return.
An LLC with either single or multiple members may elect to be taxed as a corporation through the filing of IRS Form 8832.[5] After electing corporate tax status, an LLC may further elect to be treated as a regular C corporation (taxation of the entity’s income prior to any dividends or distributions to the members and then taxation of the dividends or distributions once received as income by the members) or as an S corporation (entity level income and loss passes through to the members). Some commentators have recommended an LLC taxed as an S-corporation as the best possible small business structure. It combines the simplicity and flexibility of an LLC with the tax benefits of an S-corporation (self-employment tax savings).[6]
Companies with limited liability exist in business law worldwide. However, the limited liability company is a specific legal structure defined by the laws of U.S. states, with quite distinct characteristics. Many other countries have similar structures.
"Sociedad de Responsabilidad Limitada" (S.R.L.) (Ley de sociedades comerciales 19.550) The capital is divided into "quotas" (unlike the "Sociedades Anonimas (S.A.)" which capital is divided in "shares"); members limit their responsibility to the nominal value of the quotas subscribed or later acquired. The number of members shall not exceed fifty. The administration and representation of the company corresponds to one or more managers, members of the company or not, designated for a specified or unspecified period of time. Alternates may be selected in case of vacancy.
In Belgium, there are several forms of corporation which provide limited liability. The Besloten Vennootschap met Beperkte Aansprakelijkheid (BVBA) in Dutch, or Société privée à responsabilité limitée (SPRL) in French, is the smallest, with minimum required startup capital of €18,550, and is mostly used by smaller business owners to protect themselves in case of bankruptcy. Profits are not taxed personally at the member level but always at the BVBA level.
Bosnian and Herzegovinian legislation, similarly to that in Croatia, contemplates LLCs as društvo s ograničenom odgovornošću (d.o.o.). Companies using this structure append the abbreviation d.o.o. to their company name. A shareholder or member in a d.o.o. is only personally liable up to the value of the member’s investment in the company.[10]
The corporate structure in Brazilian law most similar to the American LLC is the Sociedade Limitada (“Ltda.”), under the new Brazilian Civil Code of 2002. The sociedade limitada is the new name of the sociedade por quotas de responsabilidade limitada, and it can be organized as empresária or simples, under this new code, roughly corresponding to the form types of comercial (“commercial”) and civil (“non commercial”) of the Commercial Code. A new law in Brazil has made it legal to obtain an LLC by a sole-proprietor called Empresa Individual de Responsabilidade Limitada (Eireli for short). The main requirement is capital of 62,200 reais (US$35,250).
Bulgarian legislation contemplates LLCs as Дружество с ограничена отговорност (Druzhestvo s ogranichena otgovornost; Partnership with limited liability). Companies working under this structure append the abbreviation ООД (OOD) to their name. In case of an LLC with individual owner it is contemplated as Еднолично дружество с ограничена отговорност (Ednolichno druzhestvo s ogranichena otgovornost; One-man/ Single-member partnership with limited liability) and abbreviated as ЕООД (EOOD).[11]
Chilean legislation contemplates LLCs as Sociedad Comercial de Responsabilidad Limitada (Limited Liability Commercial Association). Companies working under this structure append the abbreviation Ltda. to their name. Therefore, a company which in the United States is called SomeCompany LLC would be called SomeCompany Ltda. in Chile. However, in the case of an LLC with one individual owner, the equivalent in Chile would be an Empresa Individual de Responsabilidad Limitada which uses the EIRL abbreviation.
Colombian legislation contemplates a very similar structure as mentioned above in the Chilean case. The Ltda. abbreviation is also used in Colombia.[citation needed]
In Croatia, a private limited liability company is termed društvo s ograničenom odgovornošću (literal: limited liability company), abbreviated d.o.o.. A public limited liability company is termed a dioničko društvo (literal: joint stock company) abbreviated d.d..[12]
Czech legislation contemplates LLCs as společnost s ručením omezeným (s.r.o. or spol. s r.o.). An s.r.o. is not technically comparable to an LLC because the profits are still subject to double taxation. Czech law does not offer a possibility to start up a limited company without the possibility of avoiding double taxation. The minimum start-up capital for an s.r.o. is CZK 200,000 (approximately US$ 11,000).
The Danish form of the LLC is the anpartsselskab (see ApS). The minimum capital is required by law to be at least DKK 80,000 (approximately US$16,000) [Before 1 March 2010, DKK 125,000].[13]
Dominican Republic legislation contemplates LLCs as Sociedad de Responsabilidad Limitada, also known by their abbreviation S.R.L.;; S.R.L.s award limited liability to their members up to their contribution in the company (i.e., contribution of capital). This type of company began after the law number 479 of the year 2008.
In Estonia, a limited liability company is referred to as osaühing (OÜ). The type of entity is also required to be identified in the name.
Although not an exact equivalent, the Finnish version of the LLC is the Oy (osakeyhtiö) or in Swedish AB (aktiebolag). An Oy is taxed as a corporation. The minimum capital required by law is €2,500.[14]
S.A.R.L. or Société à Responsabilité Limitée is close to German GmbH. It was in law since 1925.
Because of its hybrid characteristics it is very difficult to determine the German equivalent. On one hand it is possible to consider it as a kind of Gesellschaft mit beschränkter Haftung (GmbH) because it has aspects of a corporation; on the other hand it could be considered as a kind of Kommanditgesellschaft (KG), which is the German equivalent of a limited partnership. Based on the literal translation of the word “company”, an LLC should be considered as a kind of KG without any liable partner. For the purpose of taxation, the Bundesfinanzministerium (German Federal Ministry of Finance) gives detailed guidelines of the circumstances under which an LLC is to be considered as a “corporation” or as a “limited partnership”; see: Steuerliche Einordnung der nach dem Recht der Bundesstaaten der USA gegründeten Limited Liability Company.
Hungarian legislation contemplates LLCs as Korlátolt felelősségű társaság. Companies working under this structure append the abbreviation Kft. to their name.[citation needed] Hungarian LLCs were previously required to have a 3million HUF (Hungarian Forint) (approx. 16k USD) starting capital. This amount has been recently reduced and currently (in 2009) the minimum starting capital is 500k HUF (approx. 2.7k USD). The time of formation by the new electronic formation option has been reduced from 2 weeks to 2 hours, additional cost of formation is around 100k HUF (approx. 540 USD). Kft.s can be formed by the cooperation of lawyers. The Hungarian Kft. is the most common form of doing business in Hungary. As being part of the European Union (EU), Hungarian Kft.s can now obtain an EU VAT registration number for doing business across the EU. The Hungarian EU-VAT reg.number starts with "HU". This way the existence of the subject company, VAT issues and the cross-check is available on the common EU website for companies.[citation needed]
According to Icelandic legislation, there are two types of LLC forms, private and public held limited liability forms. Private LLC is abbreviated "Ehf." with the minimum capital of 500,000 Icelandic krónas (kr.). Public LLC is abbreviated "Hf." with minimum capital of 2,000,000 kr.
In India, LLCs are known as Limited Liability Partnerships (LLP). There is no minimum capital requirement.
In India, companies are governed and registered under the Companies Act, 1956. New enactment Limited Liability Partnership Act, 2008 is passed for taking care of smaller firms. Under the CA1956, every state has one office of Registrar of Companies under this act. The group of people as prescribed by the act sign together the document Memorandum & Articles of Association and submit to the registrar along with the fees. The Registrar after checking the documents, registers the Company and allocates the Corporate ID number. Since 2007, the registration is done online and payment of fees is accepted online. Institute of Company Secretaries of India, a statutory body appointed under this act, registers charter member for rendering the services under this act, to the corporate. Then Company can apply for PAN card (registration under Income Tax Act, 1961), bank account, apply for issue of shares (for public Companies), of apply for loan to the banks and FIs.
The company must include "Limited" (for public companies) or "Private Limited" (for private companies) in its name. The companies registered under section 25 of this act are non-profit companies.
The Italian Civil Code, approved in 1942 and as amended by the Government Act 6/2003 and furthers modifications, mainly provides three forms of limited liability company:
Companies append the corresponding abbreviation to their company names.
Japan passed legislation in 2006 creating a new type of business organization, godo kaisha(J-LLC), a close variant of the American LLC.[citation needed] Japanese Tax authority does not consider J-LLC (Godo-Kaisha) a pass-through entity, but as a taxable entity.
In Latvia, a limited liability company is referred to as Sabiedrība ar Ierobežotu Atbildību. Abbreviation SIA is usually added before the company name. SIAs are recorded in a public register called Register of Enterprises (UR).
Macedonian legislation contemplates LLCs as Drushtvo so Ogranicena Odgovornost. Companies working under this structure append the abbreviation d.o.o. or "д.о.о" to their name.
Mexican legislation contemplates LLCs as Sociedades de Responsabilidad Limitada, also known for their abbreviation "S. de R.L.". S. de R.L.'s award limited liability to its members up to their contribution in the company (i.e. contribution of capital) and also act as pass-through or flow-through entities whereby profits are "passed-through" to its members, avoiding double taxation. This type of company is widely used by foreign investors in Mexico because of its "pass-through" modality and its "check the box" capability under the IRC (Internal Revenue Code of the U.S.).[citation needed]
Moldovan legislation contemplates LLCs as Societate cu Răspundere Limitată, abbreviated "S.R.L.", and are regulated member(s)-founder(s), and other non-founder members, minimum one member-founder and maximum total of 50 members, at least one of them must be the founder of the company, but all of the 50 could be also founders.[citation needed]
In the Netherlands, the equivalent to an LLC is a Besloten Vennootschap. Its name always starts or ends with the letters BV. Minimum capital of a BV is €18,000, normally deposited in a Dutch bank. BVs are taxed on profits, but neither on royalty income, nor on capital. Audits are only required if two out of three conditions exist: 1. revenue greater than €8.8M, 2. assets are greater than €4.4M, 3. more than 50 employees in the Netherlands.[15]
In Norway, the equivalent to an LLC is an Aksjeselskap. Its name always starts or ends with the abbreviation AS or ASA. Minimum capital of an AS is 30,000 NOK (from 1 January 2012).
In Pakistan, LLCs are known as private companies that end with Pvt. Ltd. They should have at least Rs. 100,000 as their minimum paid up capital.
There is no direct equivalent of an LLC in Peru, but some similar corporate forms include:
The capital for any of the above entities is freely determined by its statutes. There is no minimum requirement except for entities with certain types of activities, mainly in the financial markets, and then irrespective of their type.[16]
In Poland, a limited liability company is referred to literally as “company with limited liability” (Spółka z ograniczoną odpowiedzialnością, abbreviated as Sp. z o.o.).
The minimum start capital is 5,000 PLN (since 2009; until then, 50,000 PLN).
In Portugal, LLCs are called "Sociedades de Responsabilidade Limitada", that is, “company of limited responsibility”, usually abbreviated Lda.. They are tax subject, and company shares cannot be sold in a public market, since 2006 the transference of them is not required to be done in the presence of a civil law notary, except if the company owns buildings, in the same way other major properties have to be sold. Nonetheless, the responsibility of the partners is limited to the capital share they hold, and the minimum capital required by law for a "Lda.. is at least €5.
Romania recognizes the limited liability company since 1990 under the name of societate cu răspundere limitată (S.R.L.), in which the owners are personally liable for the company obligations within the limit of their contribution to social capital. The minimum start capital is 200 RON which currently amounts to less than €50[17]
In Russia and certain other former Soviet countries, an entity with a somewhat similar structure is known as Общество с ограниченной ответственностью (lit., “company with limited liability”), usually abbreviated OOO, or in some CIS countries as OсOO.[citation needed]
Although a Russian limited liability company shares the same name with an American LLC, it is different in many ways. Most importantly, a Russian LLC is not tax transparent: the company is taxed at the corporate level, and then, upon distribution of dividends, shareholders pay income tax (personal or corporate).[citation needed]
A limited liability company is the most popular form of legal undertaking in Russia for simple shareholding structures.[18]
The minimum capital required is 10,000 Russian rubles.
Serbian legislation contemplates LLCs as društvo sa ograničenom odgovornošću. Companies working under this structure append the abbreviation d.o.o. or DOO to their name same as in Croatia. As in the Czech Republic, a d.o.o. is not technically comparable to an LLC because the profits are still subject to double taxation.[citation needed]
In Slovakia, the law contemplates spoločnosť s ručením obmedzeným (abbr. spol. s r. o.) or as the rough equivalent of a limited liability company. From one to 50 associates can found it through a founding agreement with minimum capital of €5000, minimum €750 per person, in money or other property. (§ 105 and following of Act. No 513/1991 Coll. - Commercial Code as amended.)
Slovenian legislation contemplates LLCs as družba z omejeno odgovornostjo. Companies working under this structure append the abbreviation d.o.o. to their name. The minimum required starting capital for a d.o.o. is €7,500. Due to the high cost and complicated bookkeeping of a real corporation, this is a more widespread form.[citation needed]
In Spain, LLCs are called Sociedad de responsabilidad limitada, that is, “company of limited responsibility”, usually abbreviated S.L. They are tax subject, and company shares cannot be sold in a public market, the transference of them having to be done compulsorily in the presence of a civil law notary, in the same way other major properties have to be sold. Nonetheless, the responsibility of the partners is limited to the capital share they hold, and the minimum capital required by law for a S.L. is at least €3,000.
Sweden has no equivalent of an LLC. The closest is the Swedish AB (aktiebolag), though a Swedish AB is a tax subject and is more similar to a US C Corporation than an LLC. The minimum capital required by law for a minimum at SEK 50,000.[19] for a private AB and SEK 500,000 for a public AB.[20]
The Swiss Code of Obligations[21] provides for different kinds of companies with limited liability, the two most commonly used are:
Swiss Limited Liability Company:[22][23] The terms for this kind of company used in the three official languages of the Swiss Confederation are as follows: In German Gesellschaft mit beschränkter Haftung (abbreviation: GmbH), in French Société à responsabilité limitée (abbreviation: S.à r.l. or SARL) and in Italian Società a Garanzia Limitata (abbreviation: SaGL). A Swiss LLC is similar to a LLC with respect to various matters, including the following: Members may also be natural persons, corporations, partnerships or other LLCs,[24] the liability of a member of a Swiss LLC to pay for the LLC's obligations is limited to its capital contribution,[25] a Swiss LLC may be either member-managed or manager-managed,[26] and, unless otherwise provided for in the operating agreement, the members’ right to control or manage a Swiss LLC is proportionate to their individual membership interest.[27] The membership interests in a Swiss LLC have to be registered[28] and, thus, they may only be issued in the name of a member but not to the bearer.
Swiss Corporation[23][29] (in English common law context usually translated as company limited by shares): The terms for this kind of company used in the three official languages of the Swiss Confederation are as follows: In German Aktiengesellschaft (abbreviation: AG), in French Société Anonyme (abbreviation: SA) and in Italian Società Anonima (abbreviation: SA). A Swiss corporation is with respect to various matters different to a LLC (including a Swiss LLC): Most important is that a Swiss corporation may, neither by default nor by exercising any respective option provided by the Swiss law, be member-managed like a LLC, as the respective mandatory provisions of Swiss law provide that the board of directors has certain non-transferable duties.[30] Furthermore, the shares of a Swiss corporation may also be issued to the bearer (bearer shares)[31] and, thus, not only in the name of a holder (registered shares), which, however, applies to the membership interests in a Swiss LLC, which may only be registered.
In Turkey, "Limited Şirket (Ltd. Şti.)" corresponds to Limited Liability Company.
The new form of limited liability partnership (LLP), created in 2000, is similar to a US LLC in being tax neutral: member partners are taxed at the partner level, but the LLP itself pays no tax. It is treated as a body corporate for all other purposes including VAT. Otherwise, all companies, including limited companies and US LLCs, are treated as bodies corporate subject to United Kingdom corporation tax if the profits of the entity belong to the entity and not to its members.
This type of entity exists in this country since the 1990s. In Ukrainian, it is spelled "Товариство з обмеженою відповідальністю" (abbreviated – TОВ, TзОВ), in transliteration "Tovarystvo z Obmezhenoyu Vidpovidalnistyu," that is, “company of limited liability”.[citation needed]
This type of entity exists in the U.A.E. states as a widely accepted way to do business and is referred as L.L.C.[citation needed]
A Limited Liability Company (LLC) is a relatively new business structure authorized by state statute.[32] The LLC is chiefly inspired by the GmbH, a type of business organization in Germany, and by limitadas, a type of business organization available in many Latin American countries.[33]
In the United States, the first limited liability company act appeared in Wyoming in 1977 as special interest[clarification needed] legislation for an oil company.[34] In 1980, the Internal Revenue Service issued a private letter ruling to an LLC formed under Wyoming LLC Act indicating that the IRS would treat the LLC as a partnership for federal tax purposes.[35] However, later that year, the IRS proposed regulations that would deny partnership classification to any business entity in which no member bore personal responsibility for the entity’s liabilities.[36] In 1982, Florida adopted an LLC act modeled on Wyoming’s LLC Act.[37] Due to uncertainty over the tax treatment of LLCs, no other states introduced LLC legislation until after 1988.[38] In 1988, the IRS issued a revenue ruling stating that it would treat a Wyoming-style LLC as a partnership for tax purposes.[39] By 1996, nearly every state had enacted an LLC statute.[40] The National Conference of Commissioners on Uniform State Laws adopted the Uniform Limited Liability Company Act in 1996 and revised it in 2006.[41]
AOL was set up as a LLC during its ownership by Time Warner from 2001 to 2008. There is a similar setup for BMW's American subsidiary, BMW of North America, LLC.
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