Limited liability companies, or LLCs, are becoming more and more popular, and it's easy to see why. They combine the personal liability protection of a corporation with the tax benefits and simplicity of a sole proprietorship or partnership. In addition, they're more flexible and require less on going paperwork than corporations. We can help you quickly and easily set up a new LLC or convert your existing business into an LLC.
A Limited Liability Company has the advantage of being a hybrid between a partnership and a Corporation. The advantage of a Limited Liability Company is that most states require far fewer formalities be observed in an LLC in comparison to a corporation.
Advantage: One LLC Member Required. Historically, most states require that a Limited Liability Company be comprised of at least two LLC members. Today Arizona, and most states and the IRS, recognize the single-member LLC as a legitimate business structure.
Separate Legal Entity. Like limited partnerships and corporations, the Limited Liability Company shares a similar advantage -- it is recognized as a separate legal entity from its "members."
Limited Liability. Ordinarily, only the LLC is responsible for the company's debts thus shielding the members from individual liability. However, there are some exceptions where individual members may be held liable:
·Guarantor Liability: Where an LLC member has personally guaranteed the obligations of the LLC, he or she will be liable. For example, where an LLC is relatively new and has no credit history, a prospective landlord about to lease office space to the LLC will most likely require a personal guarantee from the LLC members before executing such a lease.
·Alter Ego Liability: Very similar to the judicial doctrine applied to corporations where a court may hold the individual shareholders liable where the business entity is merely the "Alter Ego" of its shareholders, a member of an LLC may also be held liable for the LLCs debts if the court imposes its "alter ego liability" doctrine.
Please note, however, that although a corporation's failure to hold shareholder or director meetings may subject the corporation to alter ego liability, this is not the case for LLCs in Arizona. An LLC's failure to hold meetings of members or managers is not usually considered grounds for imposing the alter ego doctrine where the LLC’s Articles of Organization or Operating Agreement do not expressly require such meetings.
LLC Management and Control. Management and control of an LLC is vested with its members unless the Limited Liability Company's articles of organization provide otherwise.
Voting Interest. Ordinarily, voting interest in an LLC directly corresponds to interest in profits, unless the articles of organization or operating agreement provide otherwise.
Transferability. No one can become a member of an LLC (either by transfer of an existing membership or the issuance of a new one) without the consent of members having a majority in interest (excluding the person acquiring the membership interest) unless the articles of organization provide otherwise.
Duration. An LLC does not have a reliable continuity of existence. The articles of organization must specify the date on which the Limited Liability Company's existence will terminate. Unless otherwise provided in the articles of organization or a written operating agreement, an LLC is dissolved at the death, withdrawal, resignation, expulsion, or bankruptcy of a member (unless within 90 days a majority in both the profits and capital interests vote to continue the LLC).
Advantage: Formalities. The existence of an LLC begins upon the filing of the Articles of Organization with the Secretary of State. The articles must be on the form prescribed by the State Corporations Commission. Among the required information on the form are the latest date at which the LLC is to dissolve and a statement as to whether the LLC will be managed by one manager, more than one manager, or the members.
To validly complete the formation of the LLC, members must enter into an Operating Agreement. This Operating Agreement may come into existence either before or after the filing of the Articles of Organization.
We can help you quickly and easily set up a new LLC or convert your existing business into an LLC. Please give us a call to get started.
Please note that this legal documentation service is not a law firm, and that I do not act as your attorney; using my services is not a substitute for the advice of an attorney. Rather, it helps you represent yourself in your own legal matters. If you seek representation, are involved in litigation or have complex legal issues that cannot be resolved on your own, we recommend that you hire an attorney.
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