WHAT IS A LIMITED LIABILITY COMPANY?

Forming a Limited Liability Company (LLC) is the simplest way of structuring your business to protect your personal assets in the event of a lawsuit.

LLCs may belong to one or more people, who are known as LLC “members.” An LLC with one owner is known as a single-member LLC, and an LLC with more than one owner is known as a multi-member LLC.

SHOULD I FORM AN LLC?

Forming your business as a limited liability company helps:

• Protect you against lawsuits.
• Make your business appear more credible to customers and creditors.
• Prevents your company from being taxed twice. Reduce paperwork compared to corporations and other legal entity types.

Types of LLCs

All LLCs offer the same features that make them a unique hybrid of other business entities: limited liability and pass-through taxation. Some types of LLC’s work best for a particular business scenario. Here are the most common types of LLC:

Domestic LLC

An LLC is referred to as a "domestic LLC" when it conducts business in the state in which it was formed. Usually, when we refer to LLC, we actually mean Domestic LLC.

Foreign LLC

When an existing LLC decides to open offices or have any other type of physical presence in the new state, it must register in that state as a foreign LLC. For example, if an LLC "organized" in Arizona opens a business establishment in Texas, then your Arizona LLC will also have to form in Texas as a Foreign LLC.

Professional LLC

A Professional LLC is a Limited Liability Company that is organized to provide professional services, for example, medical or legal practice. To form a Professional LLC, it is necessary for certain members of the LLC to possess the necessary state licenses to demonstrate their professional qualifications.

In a Professional LLC, the limitation on personal liability does not apply for requirements for professional malpractice claims. Therefore, before forming a Professional LLC it is recommended to seek legal advice.

Series LLC

A Series LLC is a unique type of LLC in which a single “parent” LLC provides limited liability protection across a series of “child” businesses. In addition, each “child” business is protected from the liabilities of the other businesses within the single Series LLC. Currently, you can only form a Series LLC in seventeen states: Alabama, Delaware, Washington D.C., Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Montana, Nevada, North Dakota, Oklahoma, Tennessee, Texas, Utah, and Wisconsin.

What is a Limited Liability Partnership (LLP)?

A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In the LLP, each partner is not responsible or liable for the misconduct or negligence of another partner. Unlike corporate shareholders, partners have the right to manage the business directly. In contrast, corporate shareholders must elect a board of directors under the laws of various state charters. The board self-organizes (also in accordance with the laws of various state charters) and hires corporate officers who then have as "corporate" individuals the legal responsibility for managing the corporation in the corporation's best interest. An LLP also contains a different level of tax liability than the corporation.

What is a Limited Partnership (LP)?

A limited partnership (LP) is very similar to a general partnership, but with some significant differences.

The management of a limited partnership rests with the "general partner," who also bears unlimited liability for the debts and obligations of the company. A limited partnership allows for any number of "limited partners," whose liability is limited by the total amount of their investment in the company.

A limited partnership is the entity of choice for many law, accounting and finance firms. It is also popular among businesses that focus on time-limited projects, such as real estate and movie companies.

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