Limited Liability Company

LLC Membership

-All state LLC statutes permit other types of business entities such as a corporation or partnership to serve as a member of an LLC -obligation of an LLC to disclose its membership varies by state

LLC Tax Obligations

-Federal Government does not consider an LLC as a separate tax entity so the business itself is not taxed -Income taxes are paid by LLC's members through their personal income tax

Limited Life

-In many states when a member leaves an LLC the business is dissolved and the members must fulfill all remaining legal and business obligations to close the business -The remaining members can decide if they want to start a new LLC or part ways -you can include provisions in your operating agreement to prolong the life of the LLC if a member decides to leave the business

Disadvantages of an LLC

-Limited Life -Self-Employment Taxes

Advantages of an LLC

-Single Taxation -Limited Liability -Less Recordkeeping -Sharing of Profits

Pro of Buyout Agreement

-When trigger events occur the buy sell avoids conflict and protects everyone -can restrict who will end up being a partner in business, do not want any outsider owning interest in the business

Delaware LLC Act

-combines asset protection and limitation on member's personal liability with IRS approved pass-through tax treatment -allows business owners to determine the structure and rules that govern the members of their LLCs in a contract they craft and customize

Buy-sell/Buyout Agreement

-every co-owned business needs a buy-sell/buyout agreement -protects business owners when a co-owner wants to leave the company and protects the owner who is leaving -sets price and terms for buyout

Sharing of Profits

-fewer restrictions on profit sharing within an LLC, members distribute profits as they see fit -up to the members themselves to decide who has earned what percentage of the profits or losses

Operating Agreement

-legal document that outlines the ownership and operating procedures -set out the financial and working relations among business members and between members and managers -includes percentage of interests, allocation of profits and losses, member's rights and responsibilities and other provisions -voting rights of each member in making key decisions -withdrawal -sell or pledge interest to a third party -impact of death or disability -new members admitted -liquidation -indemnification rights if member is sued

Limited Liability

-members are protected from personal liability for business decisions or actions of the LLC -if the LLC incurs debt or is sued, members' personal assets are usually exempt (like the liability protections afforded to shareholders of a corporation)

Self-Employment Taxes

-members of LLC are considered self employed and must pay the self-employment tax contributions towards Medicare and Social Security -entire net income of the LLC is subject to this tax

Professional LLC

-provides professional services to the public including medical, legal, and accounting services -member must be a licensed practitioner in the field -corporation cannot serve as the member

Articles of Organization

-simple document that legitimizes your LLC and includes info like your business name, address, and the names of its members -filed with Secretary of State

LLC Name

3 Rules: 1. Must be different from an existing LLC in your state 2. Must indicate that it's an LLC 3. Must not include words restricted by your state

Required vs Recommended for LLC

Articles of Organization is required and Operating Agreement is not required in all states but a good idea to create

Buyout Specifics

Binding contract between co-owners that controls: -when owners can sell their interest -who can buy an owner's interest -what price will be paid

Single Taxation

Corporations are taxable entities, LLCs are not

Forming an LLC

Each state has slight variations to forming an LLC, but they all adhere to some general principles: 1. Business Name 2. Articles of Organization 3. Operating Agreement (not all states) 4. Obtain Licenses and Permits 5. Announce your Business

Rights of first refusal

If a departing owner receives an offer from an outside party for his/her shares, or had died or becomes disabled, spousal separation, the departing shareholder must first offer shares at the same price to the remaining shareholders and if they do not wish to buy then to the company

Less Recordkeeping

LLC's operational ease, less registration paperwork and their start-up costs are lower

Buy Sell Agreement Questions

Make sure to look on LLC PPT ***Have examples of questions

When does a buyout agreement come into play?

When an owner: -retires -goes bankrupt -becomes disabled -gets divorced -dies

Limited Liability Company

business structure that combines the pass-through taxation of a partnership with the limited liability of a corporation

Business Qualifications and Buy Back

if business owners are required to have certain qualifications to conduct business and becomes disqualified (example: loses license) the business must buy-back the owners share of the business

What are the owners of an LLC called?

members

Arizona and NY

require the extra step of publishing a statement in local newspaper about LLC formation

Consent Restraint

requires the owner desiring to sell to secure the approval of the remaining owners or managers

Redemption

the business itself makes the purchase so the owners do not individually go out of pocket

Number of LLCs

today over two-thirds of all new companies formed are LLCs

Cross Purchase

type of agreement where if a member becomes disabled, goes bankrupt, etc, the other can buy his share