Limited Liability Companies have a “pass through tax” and the same flexibility available to Partnerships plus the all-important limited liability of a Corporation.
A common problem with Corporations is called “double taxation.” LLCs, on the other hand, do not have this problem. The business itself is not taxed on profits, only the members of the LLC themselves are taxed. This subtle but crucial difference can save companies enormous amounts of money. This, in addition to some other advantages discussed below, make forming an LLC with a Georgia Limited Liability Company lawyer a good option for many business. To learn more about how this may apply to your business and what the benefits may be, seek the help of a business formation attorney today.
Just like Corporations, LLCs have “limited liability.” This means that the amount that a member would have to pay (your liability) in a lawsuit is limited to the amount that a particular person invested into the LLC itself. So for example, let’s say that my 4 friends and I are members of an LLC and we each invest $10,000 into the company to get it started. Our business is a golf resort and during our 3rd year of business, one of our patrons, Bob Cratchety, falls down the stairs at the entrance and breaks his leg. He sues the company for damages and is awarded $50,000.
Due to our “limited liability” status, none of the LLC members would have to pay any of Bob’s damages. Even if he won an award of $500,000, we would still only have to pay him money from the business itself. If the LLC only had, say $100,000 in its bank account, and it could only get $50,000 from liquidating its assets (selling the golf course), then Bob would only be able to get $150,000; he would not be allowed to sue us individually for our houses, our cars, or our children’s education fund. Our liability is limited to our investment. A legal professional experienced in handling litigation for Limited Liability Companies can represent your business in these types of situations.
With Corporate law, and the origins of the limited liability system, courts would sometimes “pierce the corporate veil,” and allow a suing party to go after a shareholder’s personal assets if the court found that the corporation was a sort of “fraud” or “corporate shell” that was created to shield an owner from liability for releasing a product into the market that was known to be incredibly dangerous.
They also pierce the veil if the owners fail to comply with all the rules for maintaining a corporation (more on this below). While they’re supposed to be treated differently, courts have had a tendency to treat LLCs exactly like they do Corporations. If a business owner fails to comply with all the LLC red tape and provisions in his Operating Agreement, the courts are more likely to pierce the veil and allow people to go after people’s own personal assets. If someone is attempting to go after your personal assets, you should retain a lawyer who focuses on Limited Liability Companies.
In order to maintain your limited liability status under a corporate form, you have to jump through an enormous amount of administrative hoops to keep a court from “piercing the corporate veil,” as mentioned above, and allowing people who want to sue you to go after your personal assets. The list of administrative functions and maintenance requirements is outlined above.
Fortunately, with an LLC, you just make business decisions. You can assign officers and have certain voting requirements for major decisions (like whether to sell the business or merge with another business) if you’d like, but for the most part, your job as a member is simply to run your business. You don’t need a law degree (or to pay an in-house corporate counselor) to understand everything you have to do to maintain your limited liability. The mere fact that you have an LLC, basically, gives you limited liability.
Limited Liability Companies are based in state law, so each state will have a slightly different piece of legislation that allows for the formation of LLCs. Thankfully, the vast majority of LLC legislation across the states are nearly identical, and most business papers can be setup in such a way as to avoid any issues with whatever state you’re registering your business in.
Registering your company with your secretary of state is usually fairly painless. You have to get a lawyer to write up your Management Agreement (called an “Operating Agreement”) and file it with your Secretary of State so that it’s on record. You’ll also need to include the acronym “ LLC” after every single printing of your business name. This is to give the public warning that, if they do dealings with you, you have limited liability and they won’t be able to go after your personal property. An attorney in the area can help you understand the legal aspects of forming an LLC.
These days, we’re all about customization. Everything from your car down to the settings on your Wall Street Journal iPhone app are customized for your needs. Yet, a lot of business-owners still forget to customize their own business management agreements for their dream companies.
It is true that, in the absence of a customized Operating Agreement for an LLC, courts will usually utilize your state’s version of an operating agreement. This boiler-plate, one-size-fits-all approach may be helpful, but it’s also a huge risk. Stock agreements like these can create business requirements that you would never want in your business. They may also include requirements that you never learn about, and end up failing to adhere to.
This failure, in turn, can make a court more likely to pierce the veil in the absence of your own operating agreement because it looks more like a shell company that doesn’t “deserve limited liability.” For those reasons, creating and registering with the state your own customized Operating Agreement does wonders to protect your Limited Liability status as an LLC, and it allows you to adjust the structure of your company until it fits perfectly.
As you can see, LLC agreements, as new a technology as it is in the legal world, are almost all upside when it comes to creating business entities. A seasoned lawyer can help you see that LLCs are preferable to partnerships and corporations, as they have the benefits of both without all the downside and unnecessary maintenance that the older forms require.
When forming an LLC, it is best to hire a Georgia limited liability company lawyer who is familiar with relevant state laws.