Is Doing Business as an LLC the Right Option for You?
What is an LLC?
LLC is an acronym for “limited liability company”. In Maryland as well as other states, it is a
type of business that allows the owners, who are called “members” to shield
their personal assets against liability for business debts. Members of the LLC are not personally
obligated for debts or liabilities incurred by the LLC solely by reason that
they are members of the LLC.
How is an LLC formed?
are formed by filing Articles of Organization with the Maryland Department of
Assessment and Taxation. The Articles of
Organization spell out the basic information need by the State of Maryland to
form an LLC.
What is an LLC Operating Agreement?
LLC Operating Agreement is the basic governing documents for an LLC. It spells out the specific terms under which
the LLC can add or remove members, hire or fire managers, raise new capital for
operations and make decisions about the way that the LLC is managed. It establishes the rights and responsibilities
of each member of the LLC.
LLC Operating Agreement is helpful to avoid disputes over how the LLC is
governed. In it the members can specify
how important decisions will be made and how profits or losses will be
distributed. An operating agreement can
be helpful when a member desires to withdraw from the LLC or the LLC wishes to
admit a new member.
LLC’s Operating Agreement can be amended by unanimous consent of the members or
as otherwise provided in the Operating Agreement.
What is a Member?
member is a person that has an ownership interest in an LLC. A member must make some capital contribution
to the LLC. Members can be natural
persons or business entities, such as another LLC or a Corporation.
Does an LLC have stock?
members do not own shares of stock in an LLC.
Members hold a membership interest which is generally expressed on a
percentage basis. Membership interests
are apportioned based on the members’ capital contributions to the LLC.
How is an LLC managed?
LLC may be managed by its members or the members may appoint one or more
managers to manage the day-to-day operations of the LLC.
Is an LLC like a partnership?
LLC is similar to a partnership in that there is joint decision making and
profits and losses area shared among various owners.
LLC is similar to a partnership in that it provides for “flow through” taxation
of profits and losses.
LLC is different from a partnership in that an LLC’s members are not
individually liable for the LLC’s obligations solely by reason of their
membership in the LLC.
What are the benefits of forming an LLC?
LLC allows small businesses to take advantage of the limited-liability
protection that is afforded to corporations while maintaining the simplicity of
a sole proprietorship.
LLC limits the liability of the members to their capital contributions. Further, unlike in a partnership, LLC members
do not lose their limited liability by actively participating in the membership
of the company.
What are the tax implications of an LLC?
LLC can elect to be treated as an S-Corporation for tax purposes, but maintain
the simplicity f a sole proprietorship.
This allows the LLC to avoid some of the tax complications that apply to
S-Corporations. For example, an LLC can
have more than 100 members (shareholders); an LLC can have foreign owners; can
have members that are corporations, partnerships, trusts, or other LLCs; they can
derive significant portions of their income from passive sources; they can
issue more than one class of ownership (stock).
An S-corp may be disqualified for doing these things. LLC’s also provide certain tax benefits to
their members allowing them to take tax losses under technical rules having to
do with “tax basis.”
What are the drawbacks of forming an
LLCs are a relatively new type of business formation. This means that they are somewhat untested in
the courts. Other states, such as Delaware, have a longer and more established
history with LLCs.
members LLCs are generally disregarded as taxable entitles. While this is a good thing, one important
consideration is that the owner of a single members LLC is liable to the IRS
for the employer’s share of federal payroll taxes with the LLC is a disregarded
LLC is not suited to companies that will need to raise venture capital or seek
to be publicly traded.
attorneys at Baldwin, Briscoe & Steinmetz can help you determine whether
organizing your business as a limited liability company is a smart move. If so, we can also create the proper legal
structure for your business. Contact us
today for an appointment.
information contained on this page is provided as general information and does
not constitute legal advice. The
experienced attorneys at Baldwin, Briscoe & Steinmetz, P.C. can assist you
if you have questions concerning a contract, including verbal contracts. We’d be happy to sit down with you and review
your situation and provide appropriate advice.
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