Who is liable in an llc

You should conduct a thorough search to make certain using a given name is legal. Maintenance requirements in an LLC are minimal. The business is not required to have annual meetings. The LLC operating agreement controls the governance and internal operations of the LLC, such as holding meetings, voting rights, keeping of records, etc.

At a bare minimum, LLCs must update the corporate records when any major changes take place in the business. This includes changing registered agents, moving addresses, discontinuing operations, etc. Note: The limited maintenance requirements are a big draw of the LLC over other pass-through tax entities that offer limited liability, such as the S corporation.

The operating agreement is the governing document for an LLC. It serves a purpose similar to the bylaws in a corporation and the partnership agreement in a partnership.

The unique aspect of the operating agreement is, like the partnership agreement, it allows a great deal of flexibility in organizing the governance of the LLC. The operating agreement lays out all of the material provisions for governing the business.

Common provisions include: Outlining each owners interest in the LLC, Rules for the transfer of LLC interest, The rights of each member, The authority of members, How the LLC will be managed, Allocation of business profits and losses, Voting rights and procedures, Requirements for meetings and records, and Rules for the entrance and exit of members.

State law does not require that an LLC have an operating agreement, but it is a very good idea to have one. These rules are comprehensive, but they often do not adequately represent the intentions of the parties. The parties then terminate or dissolve the prior business and transfer the assets to the LLC. The Secretary of States office prescribes the appropriate documents for any entity type to covert into an LLC.

Many offices have standard forms called certificates of conversion to effectuate the conversion. Note: Corporations are more complicated entities and much care should be taken in converting the entity into an LLC.

Converting the entity will necessarily affect the rights of shareholders, the authority of managers, and the relationship with third parties. Further, converting a business entity can have significant tax consequences for the business and its owners. Because the ownership and management structure of a corporation is far more detailed, you should consult a legal and tax professional when considering converting an entity.

When converting a business entity, you will need to take care to transfer all incidental aspects of the business, such as building permits, licenses, leases, etc. The equity owners of an LLC are known as members. LLCs do not have shareholders; however, members hold membership units that are very similar to equity shares.

They will each own the business and have the title as members. In an operating agreement, Will and Grace will authorize a certain number of membership units e.

They will then allocate these units among the members as desired e. Note: There is generally only one class of equity ownership in the LLC. There are, however, innovative ways of using contracts to provide additional rights and duties between the owners.

A common form of special allocation of contractual rights is profits-only interest, which provides a right to share in profits but does not entail traditional ownership rights. Members make an election at the time of organization whether the business will be member-managed or manager-managed.

The default rule is that each member has equal authority to manage or act on behalf of the business. As such, members should take great care to outline the authority and rights of members in the operating agreement.

Manager-managed LLCs are organized more like a corporation. The members retain the authority to vote for major business decisions, but the manager s run the business and control the daily affairs. In such an entity, the members do not have the authority to control or act on behalf of the business.

Tom and Dick will run the business and act as investigators. Damages resulting from negligence are a tort liability. Your entity will protect your personal assets from tort liability, as long as you are not the person who committed the tortious act or in a couple other situations — see below.

If your employee or agent commits a tort, that employee or agent and sometimes the entity might be held liable. However, you always remain responsible for your own torts. And, if you do things properly forming the LLC, corporation or other type of entity and maintaining it properly, it will provide a lot of protection. The same things could happen to shareholders in a corporation or limited partners in a limited partnership:. There are limited circumstances where the liability shield of a registered legal entity may be pierced and the individuals associated with the entity can be held personally accountable.

Knowing when this could occur is an important factor in asset protection since a piercing event defeats the central purpose of forming a limited liability entity in the first place. The difference, though, is the carve-outs are always a risk, whereas, if you form and maintain a limited entity properly, the veil will not be pierced. The veil of liability protection provided by an entity may be pierced based on the following theories:. To maintain the liability insulation that a limited liability entity provides, take these practical steps:.

Liability insurance covers risk your business might face, such as accidents and certain types of lawsuits. A basic form of liability insurance is commercial general liability insurance. The types of negligence professionals may be sued for would not be covered under a general liability insurance policy. Talk to a knowledgeable insurance broker to find the right insurance coverage for your business.

The great thing about insurance coverage is that there will be money available to defend and pay a claim. Insurance offers a possible solution — an available pool of funds. Ultimately, there is risk in business as in life. So, You Want to Brew Seltzer? About This Post The views expressed here do not necessarily reflect the views of the Firm or any of its attorneys on any particular issue. Share Tweet Share Pin. Join Our Mailing List. Adipisicing malesuada mollit temporibus excepturi excepteur?

Many states don't restrict ownership, meaning anyone can be a member including individuals, corporations, foreigners, foreign entities, and even other LLCs.

Some entities, though, cannot form LLCs, including banks and insurance companies. An LLC is a formal partnership arrangement that requires articles of organization to be filed with the state. An LLC is easier to set up than a corporation and provides more flexibility and protection for its investors. LLCs may elect not to pay federal taxes directly. Instead, their profits and losses are reported on the personal tax returns of the owners. The LLC may choose a different classification, such as a corporation.

If fraud is detected or if a company fails to meet its legal and reporting requirements, creditors may be able to go after the members. The wages paid to members are deemed operating expenses and are deducted from the company's profits.

Although the requirements for LLCs vary by state, there are generally some commonalities. The very first thing owners or members must do is to choose a name. Articles of organization can then be documented and filed with the state. These articles establish the rights, powers, duties, liabilities, and other obligations of each member of the LLC. Other information included on the documents includes the names and addresses of the LLC's members, the name of the LLC's registered agent, and the business' statement of purpose.

The articles of organization are filed, along with a fee paid directly to the state. Paperwork and additional fees must also be submitted at the federal level to obtain an employer identification number EIN. The primary reason business owners opt to register their businesses as LLCs is to limit the personal liability of themselves and their partners or investors. Many view an LLC as a blend of a partnership, which is a straightforward business agreement between two or more owners, and a corporation, which has certain liability protections.

Although LLCs have some attractive features, they also have several disadvantages. Depending on state law, an LLC may have to be dissolved upon the death or bankruptcy of a member. A corporation can exist in perpetuity. An LLC may not be a suitable option if the founder's ultimate objective is to launch a publicly traded company.

The primary difference between a partnership and an LLC is that an LLC separates the business assets of the company from the personal assets of the owners, insulating the owners from the LLC's debts and liabilities.

Both LLCs and partnerships are allowed to pass through their profits, along with the responsibility for paying the taxes on them, to their owners. Their losses can be used to offset other income but only up to the amount invested.