Okay. So what is a limited liability
company or an LLC? Well this is a
specific entity type that is recognized
by every state in the US, and the general
characteristics of the LLC are as
follow.
The owners of the LLC are known as
members so the role of the member
changes depending on the nature of the
agreement the operating agreement or LLC
agreement that controls the internal
operations the members can either be
member managers okay or the LLC can be
manager managed and the members of the
manager managed LLC are more passive in
nature similar to a limited partner and
the managers, the hired managers, actually
manage the LLC and in most cases there
will be managers who are also members
managing the LLC and then there will be
passive members of the LLC, so as far as
structure as Authority within the LLC it
allows that flexibility to have member
managers that are similar to partners or
managers professional managers who
manage the LLC while you have passive
members. So again there's some
flexibility there on the structure.
The most important aspect of the LLC and the
reason for its existence is primarily
the limitation on personal liability of
the members of the LLC, that is the LLC
entity is a separate entity from the
owners from the members. The commercial
activity carried on could subject the
LLC itself to liability and all the
assets in it to liability but the
personal assets of the members
themselves are protected from liability.
Now the important thing here is a lot of
formality in separating the assets of
the LLC and that of the owners has to be
maintained. A failure to maintain that
separation such as
personal funds on LLC matters and LLC
funds on personal matters failing to
keep adequate records, not adequately
capitalizing the business, things like
that could cause the LLC entity to be
disregarded and not allow that level of
limited liability protection to the
owners. But if the formalities are
followed
then again the owners of the LLC the
members are protected from personal
liability that is their personal assets
are not subject to attack or by
creditors or judgment holders of the LLC
itself. This is extremely important when
the LLC has employees who go out and
carry on activities on behalf of the LLC
that could potentially subject the LLC
to liability and without that limited
liability protection it because a great
deal of risk to the member owners of the
LLC, so that's the limited liability
protection nature of it. Okay. So again
how is the LLC formed? Like other state
entities it has to be filed with the
state, generally the state Department of
our Secretary of State's office and meet
whatever their statutory filing
requirements are for disclosure but if
those are met it's the LLC is
validly formed in existence.
Like partners LLC members receive their share
of the LLC profits or losses based
either upon their percentage of
ownership or pursuant to the
operating agreement however it allocates
the specific share of profits and losses
within the LLC. Okay. So again it's passed
through taxation, the LLC might make an
informational filing but profits and
losses pass directly through to the
LLC members, and then compensation wise
LLC members generally
the percentage of profits or losses they
do not necessarily or do not receive a
salary. Professional managers of a
manager manage two LLC may receive a
form of salary through a guaranteed
payment that acts similarly to a salary
but it's separate from
their percentage of LLC profits or
losses but anyway that is that is the
general structure for how LLC's
compensate its members. So that's a broad
overview of the attributes of an LLC.