Chapter Six
Limited Liability Companies
Limited Liability Company
Entity providing full protection for its members from all
personal liability, whether arising in tort or contract;
must comply with statutes
Ways LLCs Differ from LLPs
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LLPs are a species of partnership and are governed primarily by
partnership principles; LLCs are an entirely new form of business enterprise.
Only full shield states offer full protection from liability for LLP partners for
wrongful acts of co-partners and contractual obligations, whereas a
hallmark of LLC statutes is full protection from personal liability for all LLC
members whether the liability arises in tort or contract.
All states but Wyoming permit a one-person LLC; LLPs, however, because
they are a form of partnership, must always have at least two partners.
LLPs, as a variety of partnership, must be formed for a profit-making
purpose. LLCs, however, may be formed for nonprofit purposes.
Generally, the traditional professions (such as law, accounting, and
medicine) comprise the majority of LLPs, whereas businesses in the
‘‘emerging’’ professions (computer consulting, marketing, and management
services) tend to adopt the LLC form.
Advantages of LLCs
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Limited Liability and Full Management
Flexible management
One-Person LLCs
Pass-Through Tax Status
Disadvantages of LLCs
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Limits on transfer of interest from one member of an
LLC to another
Little case law interpreting LLCs exists
Formation can be slightly complex and expensive
Some states limit the LLC to a term (generally 30
years)
Variations among state statutes may make it
somewhat complicated for a business to operate
nationwide as an LLC.
Provisions of an LLC
Operating Agreement
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Name of LLC
Names and Addresses of
Members
Recitals
Purpose
Address
Term
LLC Powers
Financial Provisions
Operations of the LLC
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Meetings and Voting
LLC Members’ Rights and
Duties
Admission of New Members
and Dissociation of
Members
Transferability of Interests
Dissolution
Miscellaneous Provisions
Key Features of Limited Liability
Companies
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LLCs offer their members full protection from
personal liability whether it arises in tort or
contract.
LLCs can be managed by their members or by
appointed managers.
LLCs can be formed only by compliance with state
statutes, which mandate the filing of articles of
organization with the state agency.
Continued on next slide
Key Features of Limited Liability
Companies
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LLCs are governed by their operating agreements.
In many instances, a member’s dissociation does not
cause a dissolution of the LLC.
The LLC provides the pass-through taxation of a
general partnership.