Limited Liability Companies

The LLC is the most popular legal entity to incorporate for new businesses.^.1 Learn how to make the most of an LLC business entity.

Definition

A limited liability company (LLC) is a type of legal entity² created by state law ³.

Reason to Incorporate an LLC

LLCs blend the liability protection of corporations and the pass-through tax status of partnerships.

Types

There are two basic types of LLC: member-managed and manager-managed. Member-managed LLCs are operated directly by the owners of the business. Manager-managed LLCs separate the ownership governance of the business from the management of the LLC.

Basic information

After you form an LLC, you must maintain it to keep it in compliance. Track the following information for an LLC:

• Legal name is official name on the Articles of Incorporation.
• Address should be the principle place of business.
• Registered Agent or legal address is the place where you receive service of process.
• Website is not legally required but is part of standard contact information.
• Email is not legally required but is part of standard contact information.
• Phone is not legally required but is part of standard contact information.
• Place of Incorporation is the legal jurisdiction for registration. In the United States, legal entities are formed under state law.
• Legal Form is the type of legal entity, such as: limited liability company, partnership (limited, limited liability, limited liability limited, or general), corporation, trust, or estate.
• Tax Status is a determined by federal tax law. In general, entities are either taxable, pass-through, or not-for-profit. LLCs are usually pass-through because that is one of their principle advantages over corporations. However, LLCs can elect other tax status.

Documents and filings

This table summarizes the types of LLC documents and filings:

Compliance obligations

After forming an LLC, it is imperative to track compliance obligations. Compliance requirements vary widely based on jurisdiction, line of business, and type of legal entity.

Here is how to design compliance tracking:

Of course, you should substitute actual filing requirements for your business. This table gives you a framework to capture the essentials of any compliance filing.

Officers and directors

Not all businesses have a Board of Directors or even officers. LLCs, corporations, and some forms of partnership generally create a corporate structure for governance (a board of directors) and management (officers or managers).

People often serve more than one role so it is important to list officers and directors by role and not by name. In the long run, it is also helpful to track terms of service for each role and person.

Here is the information to track for officers and directors:

• Type of Role: officer, director, or other (consultant, lawyer, accountant, or auditor)
• Title: chair, director, President and CEO, Treasurer, Secretary, etc.
• Name: first and last name
• Start Date (term of service): date of appointment
• End Date (term of service): date appointment ends

Please note that a person can have two different roles with very different terms of service.

Ownership

LLC owners and investors are usually called "Members." Ownership interests are called "Membership Interests." There are exceptions because LLC statutes are flexible.

You should capture the name of the owner and the percentage of ownership at a minimum.

Conclusion

To preserve the benefits of your legal entity, effective ongoing maintenance is critical.