Is An LLC Right For Your Business?

Posted on behalf of Anderlini & McSweeney LLP in Business on April 11, 2014.

BASIC CHARACTERISTICS

A limited liability company (LLC) is a 1720_wpm_lowreshybrid between a partnership and a corporation. A LLC is a recognized business entity that is separate and apart from its “members.”  Like a corporation, LLCs have a perpetual duration. However, a LLC has all the powers of a natural person in carrying out its business activities. (Subject to limitation by its articles of organization and Commercial Code.)

A limited liability company may have any lawful purpose, whether for profit or non-profit, excepting banking and insurance. Under certain specified conditions a LLC may even render services that require a license, certificate, or registration, including rendering professional services and operating as a health care service plan .

Like a corporation, which can have as few as one shareholder, a LLC requires only one “member.” Typically only the LLC, and not the members, can be held responsible for the entity’s obligations and liabilities, hence the name “limited liability.” This is the same as corporate shareholders.

MANAGEMENT

A LLC may be organized as either a “member-managed” or a “manager-managed” entity.

Unless the articles of organization provide otherwise, management and control of a LLC’s business and affairs is vested in all of its members. (“member-managed”) In a member-managed LLC each member has the right to vote in proportion to their interest, as in a partnership. In a member-managed LLC each member is considered an agent of the LLC and can bind the LLC in the same way a general partner can bind a partnership. However, unlike a partnership, because members are generally not personally liable for LLC liabilities, the acts of other members would not subject the other members to personal liability.

A LLC’s articles of organization may provide for a “manager-managed” organization – i.e. that the business affairs of the LLC are managed by one or more designated managers, rather than by all of the members collectively. A managers need not be a member of the LLC. Managers owe a duty of care and loyalty to the LLC and all of its members. A LLC manager is not personally liable for any debt, obligation or liability of the LLC. Of course, like any corporate officer, a LLC manager may be personally liable to third partys harbed by his or her own wrongful acts.

Most of the operational specifics of a LLC may be controlled and determined based on the articles of organization and operating agreement. This allows for flexibility and tailoring to the needs of a given business, while retaining the benefits of corporate limited liability, with simplified in formalities closer to a partnership. LLC’s can also be converted into another type of business entity if the operational conditions change in the future.

California’s Revised Uniform Limited Liability Company Act took effect on January 1, 2014. Its a great time to consider organizing your business into a LLC. Different business entities have differing tax obligations which should also be considered carefully. Discuss the needs of your business with an experienced attorney to determine which form of business entity is right for you.

 

About Anderlini & McSweeney LLP

Anderlini & McSweeney LLP is a boutique law firm located in the heart of the peninsula in the San Francisco Bay Area. www.anderlinimcsweeneylaw.com
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