A limited liability company (LLC) is a legal business entity that combines the most favorable features of a partnership with the most favorable features of a corporation. A limited liability company protects its members and/or managers from liability (similar to a corporation) while affording them the benefit of the pass through of profits and losses for income tax purposes (similar to a partnership). As the limited liability definition implies, members and/or managers are not completely immune from liability; their liability is simply limited. If a plaintiff pierces the corporate veil by proving that the acts of the LLC were essentially the fraudulent or improper acts of its members and/or managers, they may be liable.
Limited liability companies are sometimes referred to an limited liability corporations or as a corporate LLC. However, an LLC is not a corporation and a "limited liability corporation" is not a legal entity recognized by the law.
Each state has laws governing how to form an LLC. Generally, the first step is registering a name for the LLC with the Secretary of State. In most states, at the time the name is reserved, a fee must be paid. The next step which must be taken to form an LLC is to file the Articles of Organization with the necessary transmittal forms with the Secretary of State along with the required fee. The Articles of Organization contain basic information such as the address of the LLC's principal place of business, the names and address of the members and/or managers of the LLC, whether the LLC will be managed by its members or manager, and the name and address of the LLC's registered agent.
When starting an LLC, most jurisdictions require that an advertisement be run in the legal organ of the county in which the LLC principal office is located. Once these requirements have been satisfied, the LLC is legally authorized to do business.
Limited Liability Operating Agreements are not required in all states. However, it's advisable to have such an agreement drafted when starting an LLC. A limited liability operating agreement sets forth the rights and responsibilities of the members and managers, including issues of membership, management, operation, distribution of assets, and events of dissolution. The limited liability operating agreement is not filed with the Secretary of State as it is a private contract between the members and managers and the limited liability company.
Corporate LLC forms may be purchased from office supply stores. They are also available online. However, do-it-yourself LLC forms are not a substitute for sound legal advice and assistance.
A limited liability company can have employees and must adhere to the same employer laws as sole proprietorships, partnerships and corporations. This means that the LLC must have an employer identification number and must withhold taxes from its employees' earnings. Moreover, the LLC is bound by other employer laws pertaining to workplace practices.
Before forming an LLC, you should consult with a business attorney to get a full understanding of the legal and tax implications associated with limited liability companies. Your attorney will prepare the Articles of Organization, the Operating Agreement and all other forms necessary for starting an LLC. Hiring an attorney to draft all the documents will ensure that they meet all state law requirements.