Limited Liability Company: How to Form and Operate Your Own

Overview

If you're thinking about forming a limited liability company, this book will help you understand the nooks and crannies of the operation of LLCs so you can successfully establish your company in your own state.

More and more professionals are forming limited liability companies (LLCs) to take advantage of their many benefits. LLCs provide partners with a corporate-style liability shield, protecting them from personal responsibility for the ...

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Overview

If you're thinking about forming a limited liability company, this book will help you understand the nooks and crannies of the operation of LLCs so you can successfully establish your company in your own state.

More and more professionals are forming limited liability companies (LLCs) to take advantage of their many benefits. LLCs provide partners with a corporate-style liability shield, protecting them from personal responsibility for the company’s debts and obligations.

This book explains LLCs in detail, helping readers fully understand what an LLC is and how they can benefit from one of their own. Topics covered include:

• What is an LLC?

• What types of companies can become an LLC?

• Advantages and disadvantages of forming an LLC

• Converting an existing business into an LLC

• The basics of LLC membership

• The importance of an operating agreement

• Conducting and managing an LLC

• Special tax considerations

The enclosed CD-ROM contains the blank forms you will need to form an LLC in your state, together with an example of how each form would be completed. Forms are in MS Word format for easy completion on your computer.

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Product Details

  • ISBN-13: 9781551807430
  • Publisher: Self-Counsel Press, Inc.
  • Publication date: 1/28/2007
  • Series: Self-Counsel Legal Series
  • Edition description: 4th Edition
  • Edition number: 4
  • Pages: 152
  • Sales rank: 1,148,726
  • Product dimensions: 8.45 (w) x 11.04 (h) x 0.31 (d)

Meet the Author

Gregory C. Damman received a Bachelor of Science in Journalism from the University of Kansas in 1985 and a JD from the University of Nebraska in 1989. He owns and operates Damman Legal Research, which provides legal research and writing services to lawyers.

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Table of Contents

1 WHAT IS A LIMITED LIABILITY COMPANY? 1
1. History 2
1.1 The Wyoming experience 2
1.2 The IRS reversal 2
1.3 The LLCexplosion 2
2. The major benefits of doing business as an LLC 3
2.1 Limited liability 3
2.2 Partnership tax status 3
2.3 LLCflexibility 4
3. A potpourri of additional LLCbenefits 4
3.1 International participation 4
3.2 Confidentiality 4
3.3 Estate planning 5
4. LLCdisadvantages 5
4.1 Uncertain interstate recognition 5
4.2 Evolving tax status 6
5. Filing statistics 6
5.1 Uniformity 6
5.2 Professionals 7
5.3 Sole proprietors 7
2 IS AN LLC THE PROPER ENTITY FOR YOUR BUSINESS? 9
1. What to consider when choosing a form of business 9
1.1 Nature of the business 9
1.2 Type of owners 9
1.3 Tax considerations 10
1.4 Management considerations 10
1.5 Liability considerations 10
1.6 Record keeping considerations 10
2. Entity comparison 10
2.1 Sole proprietorship versus LLC 11
2.2 General partnership versus LLC 11
2.3 S corporation versus LLC 11
2.4 C corporation versus LLC 12
2.5 Limited partnership versus LLC 12
CONTENTS
iv Limited Liability Company
3 HOW TO FORM AN LLC 15
1. Filing the necessary documents (ULLCA section 202) 15
1.1 Articles of Organization 15
1.2 Drafting the Articles of Organization 17
1.3 Amendment of the Articles of Organization (ULLCA section 204) 18
1.4 LLC name and identification (ULLCA sections 105, 106, 107) 19
2. The filing fees 19
3. Other potential requirements 19
4. Choosing the state in which to form an LLC 20
4 THE OPERATING AGREEMENT 21
1. Contents of the operating agreement 21
2. Signature requirements 22
3. Changing the operating agreement 22
5 CONVERTING AN EXISTING BUSINESS INTO AN LLC 39
1. Converting a partnership (ULLCA sections 902, 903) 39
2. Converting a corporation 40
2.1 S corporation 40
2.2 C corporation 40
2.3 Corporate LLC conversion alternatives 40
6 THE BASICS OF LLC MEMBERSHIP 43
1. LLC membership in general 43
1.1 What do I get? What do I want? 43
1.2 Who may be an LLCmember? 43
2. The nature of an LLC membership interest (ULLCA section 501) 44
2.1 Membership contributions (ULLCA sections 401, 402) 44
2.2 Membership transfers (ULLCA section 502) 45
3. Leaving an LLC 46
3.1 Withdrawal or dissociation (ULLCA sections 601, 602(a)) 46
3.2 Wrongful dissociation (ULLCA section 602) 47
3.3 What happens when an LLC member dissociates? (ULLCA section 603) 47
7 LIABILITY OF MEMBERS 49
1. The nature of an LLC’s “limited liability” (ULLCA sections 302, 303) 49
2. Piercing the LLCveil 50
2.1 Inseparability 51
2.2 Undercapitalization 51
2.3 Illegal purpose 51
2.4 Lack of compliance with formalities 51
2.5 Equity and justice 51
3. How to avoid having the LLC veil pierced 52
Contents v
8 THE SOURCES OF MANAGEMENT RESPONSIBILITY
(ULLCA SECTION 404) 53
1. Management provisions in the articles of organization 53
2. Management provisions in the operating agreement 53
9 CONDUCTING THE BUSINESS OF AN LLC (ULLCA SECTION 301(a)) 57
1. General management considerations 57
1.1 Member agents 57
1.2 Selecting managers 58
1.3 Manager agents 59
2. Special responsibilities of members and managers
(ULLCA section 409) 59
3. Distributions (ULLCA sections 405, 406, 407) 61
10 “CHECK THE BOX” TAX STATUS 65
1. A simplified process 65
1.1 Firms ineligible for “check the box” status 65
2. Making the election 65
3. Taxation of member contributions 65
4. Possible taxation at the state level 66
11 GENERAL LLC TAX CONSIDERATIONS 69
1. What tax forms must be filed? 69
1.1 Due date for Form 1065 69
1.2 Where to file 69
1.3 Failure to file Form 1065 69
1.4 Taxable year 69
1.5 Tax matters member 70
1.6 Signing the return 70
1.7 Audits 70
1.8 Accounting method 70
2. Details of form 1065 71
2.1 Cost of goods sold 71
2.2 Other information 71
2.3 Partners’ share of income 71
2.4 Balance sheets 71
2.5 Reconciliation of income 71
2.6 Analysis of partners’ capital accounts 71
2.7 Capital gains and losses 72
3. Self-employment taxes 72
4. The LLCaccountant 72
vi Limited Liability Company
12 WILL MY LLC BE RECOGNIZED IN OTHER STATES? 79
1. Interstate recognition of LLCs — in general 79
2. How to avoid interstate problems 79
2.1 Form a manager-managed LLC 79
2.2 Include a choice of law statement in documents 80
2.3 Properly identify the LLC 80
2.4 Educate members and employees 80
2.5 Form other entities and make them members 80
2.6 Obtain adequate insurance coverage 80
2.7 Register in other states 80
13 IS MY LLC MEMBERSHIP INTEREST A SECURITY? 83
1. What is a security? 83
2. LLCs and the federal securities laws 83
3. Avoiding application of the securities laws 84
14 WHAT TYPES OF BUSINESSES ARE FORMING AS LLCs? 85
1. LLCs are suitable for nearly any type of business 85
1.1 Real estate ventures 85
1.2 Natural resource development 86
1.3 Accounting firms 87
1.4 High technology firms 87
1.5 Law firms 87
1.6 Medical practices 87
1.7 Agricultural holdings 87
1.8 Family businesses: Estate planning 88
2. Some businesses may not operate as LLCs 90
15 THE LLC LAWYER 91
1. Is an LLC lawyer necessary? 91
2. How to select an LLClawyer 91
3. Services and fees 92
3.1 Peace-of-mind service 92
3.2 Start-up service 92
3.3 Full service 93
16 TERMINATING AN LLC 95
1. The basics of dissolution (ULLCA sections 801, 802) 95
1.1 Winding up 95
1.2 Filing matters 96
1.3 Agency considerations (ULLCA section 804) 96
1.4 Distributions 96
2. Creditors’ rights upon dissolution 97
Contents vii
3. Terminating an LLC through merger 97
17 MISCELLANEOUS ISSUES 99
1. LLC records 99
2. Keeping up with LLCchanges 100
3. Annual fees and reports 100
4. Workers’ and unemployment compensation 100
5. Is an LLP more appropriate? 101
6. A final note 101
APPENDIXES
1. Uniform Limited Liability Company Act 103
2. State-by-State Directory 137
SAMPLES
1 Operating Agreement 24
2 Form 8832 67
3 Form 1065 73
4 Schedule K-1 77
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