What Determines the Structure of An LLC?

A Limited Liability Company is a business structure that offers the flexibility and tax efficiencies of a partnership but the legal protections of a corporation. Each members’ share in the company can fluctuate depending on circumstances such as being voted out, death or being bought out.

Tax Liability

An LLC is not taxed as a distinct business body, as a corporation would be; instead, all income and debts are distributed to each respected member. Members then record the earned income and losses on their personal tax returns, just as the owners of a partnership would.

Profit Sharing

When it comes to profit sharing within an LLC organization, members have supreme flexibility. Unlike with a partnership or corporation, members can allocate profits as they deem appropriate; likewise with losses. The members must decide amongst themselves how much responsibility each will take on, and how much their time is worth.

Operating Agreement

Though not necessary, an operating agreement helps members of an LLC allocate certain responsibilities, profit and loss percentages and members’ rights. Additionally, it sets out how to proceed in the event of a member’s death or “resignation,” as well as provides rules and regulations for smooth operations.

Articles of Organization

An Articles of Organization is a necessary document, and simply includes the name of the business entity, the names of the members, the address of the business entity and the details of any individuals who are allowed to receive paperwork on the company’s behalf. An LLC must file in the state in which it was organized, as well as within any other state in which it intends to do business.

Lifespan

Finally, an LLC has a less permanent life than a corporation, as it can be dissolved by the state when a member leaves or dies. Once this happens, the remaining members must decide whether they want to file for and create a new LLC or close the business altogether. However, provisions set forth in the operating agreement should be able to clarify what is to be done in the event of a possible dissolution.

For more information on starting your LLC, contact GovDocFiling here.

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