  SUPPORT IS BEST REQUESTED VIA THE INTERNET.
We can respond to support needs by phone, but ALWAYS the best first step is to send us a support request by email. As your company formation agents, we can only act on information and instructions given to us. You should not assume that we have knowledge of any factual matters. All of the information contained on this web site is not meant to be advice, nor should it be followed. The information on this site pertains to U.K. law only and is offered as a public service. It is not intended to give legal advice about a specific legal problem, nor does it create an attorney-client relationship. We do not hold ourselves out as offering tax advice, although we do not hold ourselves out as experts in the laws of any foreign country.
- PLEASE NOTE:
The materials presented by this web site, www.uk-ltd-formation.co.uk, are for informational purposes only and are not offered as legal advice as to any particular matter in any particular jurisdiction. No reader should act on the basis of these materials without seeking appropriate professional advice as to the particular facts and applicable law involved. The materials are not represented to be correct, complete, or up-to-date. Opinions presented by this web site are the opinions of the individual authors, and do not necessarily reflect the opinion of the firm of Coddan, or of any of its attorneys or clients. Coddan has no responsibility for any third-party content referenced by this web site or accessible through this web site by hyperlink or otherwise. No information in this web site about current or past events should be construed as a prediction about future results.
In compiling and maintaining this web site Coddan does not intend to practice law or solicit legal representation in any jurisdiction where this web site may fail to comply with all laws and ethical rules. Coddan has offices in various jurisdictions.
In order to process your order, we need to know some standard information, such as your name, e-mail address, mailing address and telephone number. For the purpose of forming your company or limited liability partnership (LLP) we need to know the following information: the name you want your business entity to have, the name and address of the directors and secretary of your company or members for an LLP, and how many shares of stock your company will be authorized to issue and the par value of such stock. It is our policy that the information you provide is private and confidential. Accordingly, the personal information you provide is stored in a secure location, and is used only for the purposes for which you provide the information. When you submit an order, your order information is encrypted with secure server software to protect the information from unauthorized access. Additionally, Coddan will not sell, rent, or trade any personal information you provide during ordering.
We try to answer all e-mail as soon as possible, however the sheer volume of e-mail we receive often prevents us from getting back to you within a few days.
If for some reason we cannot provide you with a solution within this time, we will let you know why, what the problem is and when you can expect a solution. We will endeavour to offer options and alternatives where possible.
Every day, we receive several emails with addresses of "Unknown Sender." This means that you cannot receive an answer to your questions unless we post it. Only queries that are pertinent and appropriate are posted. This includes tone, language, content, and non-personal information. Therefore, some of you Unknown Senders may not receive a response if your email is not postable. If you want a response, you must use your bona fide email address. Plus, we cannot take the time to answer those emails that include lists and lists of questions. Thank you for your understanding.
- LIMITED LIABILITY COMPANY.
In the past many people used the limited partnership for operating their business or protecting their personal assets. The two disadvantages were; (1) the general partner has 100% personal liability, (2) limited partners being involved in the decision making process could destroy the limited partnership. LLCs limit every member's liability without discriminating between "general" or "limited" members. The right to participate in the management of the company is never contingent on a member's limited liability. The integration of ownership and management permits all LLC members to participate in day-to-day operations of the company. LLCs now have come to the rescue and can enable you to avoid both these problems. Interestingly enough, there still seems to be a group of people who utilize limited partnerships over LLCs or corporations, stating the LLCs are new and untested. Such a lazy attitude is common with people not willing to learn something new. There are thousands of large companies and wealthy individuals now using LLCs. While LLCs are not the answer for every situation, they are an ideal entity for many.
- LLC TAXATION.
LLCs can be taxed as sole proprietorships, corporations or partnerships. On January 1, 1997 the check-the-box regulations became effective which gave clarity as to how the LLC would be taxed. Under the check-the-box rules, unincorporated entities with more than one owner (such as LLCs, LLPs and limited partnerships) generally are classified as partnerships. The tax treatment of single-owner unincorporated entities (such as single-member LLCs) is that generally they are ignored for federal income tax purposes. For example, a single member LLC engaged in a trade or business and owned by an individual would be treated as a sole proprietorship. A single member LLC that wanted to be taxed as a corporation would have to file form 8832 with the IRS to make an election to be taxed as a corporation. A single member LLC cannot be taxed as a partnership, unless it obtains a separate partner. Technically, you and a corporation you control could be two separate members of an LLC. We recommend it be a totally separate member, not an entity you also control.
Our website primarily deals with LLCs taxed as partnerships. There are few instances when you would opt for a single member LLC. Some will use single member LLCs because the income just flows onto Schedule C of your personal return, so you do not have to file a corporate or partnership return if you had a second member. This thinking is short sighted. You would be missing out on other long term benefits vs. saving a few dollars by having one less return to file.
- WHAT ARE THE ADVANTAGES OF A LIMITED LIABILITY COMPANY?
In the state of Delaware, people looked around the world and found that foreign competition had business forms that were superior to those available in the United States. In other countries there were business forms that could provide: Limited Liability (to protect owners from being personally liable for debts of the business). Pass-through taxation (to avoid the potential of double taxation of C corporations). No restrictions on permitted owners (eliminating the restrictions of S corporations). No restrictions on active participation (to insure, unlike limited partnerships, all owners could be active in managing the business without jeopardizing their limited liability protection). Operational flexibility (to let owners structure the management in a way that satisfies the concerns and requirements for each business).
As mentioned earlier, the corporation is not the place to hold assets. It is an excellent entity to operate a business and to go public (an LLC can not go public). An LLC can also be an excellent structure to operate a business. If your business has equipment or assets it should be owned by an LLC for business reasons and leased to the corporation. The following are additional benefits of the LLC: when the founding members liquidate assets from the LLC it is generally not a taxable event with the LLC. But with the C corporation it is taxable at the corporate level and shareholder level. An LLC is more desirable and flexible than an S corporation because pass-through losses under an LLC can be allocated separately to members. An S corporation does not allow for a step-up in tax basis of the S corporation's assets on the death of a shareholder and can result in shareholder tax liability on liquidation. Finally, there are restrictions on shareholders that exist in an S corporation. This can all be avoided by the LLC. An LLC has distinct advantages over a Family Limited Partnership (FLP). The members of an LLC can actively participate in the management of the LLC without losing the limited liability protection. Not so with an FLP. In an FLP a general partner is appointed to handle all management decisions without participation of the limited partner(s). Hence, the general partner has full and complete personal liability for any debts or obligations of the partnership itself. In an LLC the manager is not personally liable for the debts or obligations of the LLC. An interest in the LLC is personal property and a creditor who seizes an LLC interest by way of a charging order can not automatically reach the assets of the LLC. A creditor who seizes an LLC interest does not automatically become a member and is therefore not entitled to exercise management powers with respect to the LLC. There are no corporate formalities.
- WHAT ASSETS SHOULD BE PLACED IN AN LLC?
Insurance policies. Investments. Valuable patents or copyrights. Property. Stocks. Equipment (especially the stock of any other corporations you own). Make sure to separate safe and risky assets. You do not want to hold safe assets (stocks) with risky assets (property).
- WHAT ARE THE COMPONENTS THAT CONSTITUTE AN LLC?
Articles of Organization (similar to the Certificate of Formation). Operating Agreement (similar to the by-laws of a corporation). Certificates (similar to Stock Certificates in a corporation). The most critical part of these components is the operating agreement. Coddan's operating agreement is tailor made and is 23 pages long! When a creditor goes after the LLC's assets, all the protection lies within the operating agreement. Do not rely on a “standard” operating agreement offered by many others. A poor operating agreement may cause a loss of all the LLC's assets! The critical issues to be addressed in the operating agreement include: Member Managed or Manager Managed. Members' Rights. The LLC's Capital Structure. Financing Mechanisms. Member's Withdrawal Rights. Duration of Life. Rights to Transfer. Membership Interests.
The Limited Liability Company is a powerful entity to protect assets from the threat of lawsuits and claims. It would also make sense to separate your risky assets from your safe assets. For example, hold investments in one LLC, and heavy equipment and property in another LLC. In Nevada, an LLC can hold assets anywhere in the country. In most cases it is will have to register as a foreign LLC doing business in your state. An exception to this would be an LLC formed as an investment company to protect your investments. As with the corporation, an LLC should only be formed for business reasons!
- DO ALL STATES RECOGNIZE THE LLC?
All 50 states and the District of Columbia have authorized the organization of LLCs in their jurisdiction. Vermont, Massachusetts and Hawaii were the last states to enact LLC acts. ost LLC acts recognize LLCs formed in other states ("foreign" LLCs), and provide for the registration of the foreign LLC to do business in the state.
- CAN ANY PERSON OR ENTITY OWN AN INTEREST IN AN LLC?
Yes. Generally, any legally recognized "person" may own an interest in all LLC except a professional LLC in which the ownership rules are more restrictive due to state law, licensing authority rules, or other regulations; however, the relevant LLCact should be consulted. For example, the Missouri statue provides that any person may own an interest in an LLC and defines "person" to include individuals, partnerships, domestic or foreign limited partnerships, domestic or foreign LLCs, domestic or foreign corporations, trusts, business trustee, real estate investment trusts, estates, and other associations or business entities. [Mo Rev Stat § 347.015(15)] Uniform Act Sections 201 and 101(18) expand this definition by adding "government, government subdivision agency or instrumentality, or any other legal or commercial entity."
- WHAT ARE THE DIFFERENCES BETWEEN AN LLC AND A LIMITED PARTNERSHIP (LP)?
LLCs and LPs are very similar. Both must be structured and operated careful ensure that they are taxed as partnerships for federal income tax purposes. However, there are several significant distinctions.
General Partner Liability. While a limited partnership is not subject to the tax code ownership restrictions of an S corporation, a limited partnership must have a least one general partner who or which is able for all of the debts of the partnership. In contrast, all of the members of an LLC normally are protected from personal liability, as are limited partners. It is important to note, however, that both an LLC member's interest and a limited partner's interest are subject to charging orders against that interest obtainable by creditors of the debtor member. Several cases have held that the UPA permits the foreclosure of a limited partner's interest. [Madison Hills, Ltd Partnership II v Madison Hills, Inc, 35 Conn App 81, 644, A2d 363 (1994); Centurion Corp v Crocker Nat Bank, 208 Cal App 3d 1, 255 Cal Rptr 794 (1989); but see Nigiri v Lotz, 216 Ga App 204, 453 SE 2d 780 (1995)]
The general partner owes limited partners the duties of loyalty and care. In terms of duty of care, courts have been willing to borrow the business judgment rule from corporate law and apply it in limited partnership contexts. [Levine v Levine, 184 AD 2d 53 (1992] Some model acts apply a similar standard. [UPA § 21; RUPA § 404] Unless the partnership agreement provides otherwise, the same standards will apply to limited partnerships. [See UPA § 6(2); RULPA § 1105] Given that general partners in a partnership and managers in an LLC serve approximately the same function, courts arguably should apply the same standard to the manager of an LLC. However, courts may find that limited partners may require more protection because, by definition, they have limited management rights whereas the members of an LLC have more participation rights in management and greater control over the conduct of the LLC manager. [Ribstein and Keatinge on Limited Liability Companies, § 9.09]
Participation in Management. The participation of limited partners in the management of a limited partnership can result in a loss of limited liability protection for that limited partner. [RULPA § 303] No similar restriction exists on the ability of LLC members to participate in the management of the LLC. All LLC members can participate in the management and control of the LLC, as members or as managers. [Uniform Act § 301]
RULPA has been revised, and the revision adopted by several states allows greater participation by limited partners in the management of the limited partnership or example, the Delaware RULPA allows a limited partner to exercise any poer authorized in the partnership agreement or other written agreement. [Del Code Ann tit 6, §17-302] The Georgia version of RULPA is even more liberal; it flatly states that a limited partner does not lose limited liability as a result of participating in the management or control of the business. [Ga Code Ann § 14-9-3-3].
Nevertheless, LLCs provide greater control, limited liability to all members, and are simpler to form and maintain.
The degree of participation in management has an impact on the degree fiduciary duties that partners in a limited partnership and LLC members have between each other. Since limited partners do not have management rights, the degree of fiduciary duties owed by them to others is not as great as that of members in a LLc. For example, limited partners may not be required to alert partners of a business opportunity which has a bearing on partnership operations. [In re Villa West Associates, 193 BR 587 (D Kan 1996) (acquisition by limited partner of partnership indebtedness which reduces that partner's liability on a guarantee relative to other partners without alerting other partners of the opportunity was not a breach of fiduciary duty)]
To satisfy the minimum interest test, the general partners collectively must have at least a one percent interest "in each material item of partnership income, gain, loss, deduction, or credit…at all times during the existence of the partnership, and the partnership agreement must expressly so provide." The limited partnership does not violate this representation by temporary lapses in compliance and failures to comply due to conformance with Code Section 704(b) or 704(c). Revenue Procedure 89-12 [1989-1 CB 798] reduces the minimum interest test for limited partnerships with total capital contributions exceeding $50 million.
Revenue Procedure 89-12 also provides that, the general partners taken together must maintain a minimum capital account balance equal to the lesser of: one percent of the total positive capital account balances of the limited partnership, or $500,000. A general partner does not have to satisfy this test, if the general partner renders or will render substantial services to the partnership in his, her, or its capacity as a general partner, apart from services for which they are compensated with Code Section 707 (c) guaranteed payments.
Because an LLC by statute has the corporate characteristic of limited liability (as defined by the IRS), only in certain circumstances, prior to the effectiveness of the "check-the-box" rules, was any member of an LLC required to represent that it had a minimum net worth or was entitled to a prescribed minimum allocation of the LLC's income. [Rev Proc 95-10, 1995-1 CB 501]
- CAN ANY PERSON OR ENTITY OWN AN INTEREST IN AN LLC?
Yes. Generally, any legally recognized "person" may own an interest in all LLC except a professional LLC in which the ownership rules are more restrictive due to state law, licensing authority rules, or other regulations; however, the relevant LLCact should be consulted. For example, the Missouri statue provides that any person may own an interest in an LLC and defines "person" to include individuals, partnerships, domestic or foreign limited partnerships, domestic or foreign LLCs, domestic or foreign corporations, trusts, business trustee, real estate investment trusts, estates, and other associations or business entities. [Mo Rev Stat § 347.015(15)] Uniform Act Sections 201 and 101(18) expand this definition by adding "government, government subdivision agency or instrumentality, or any other legal or commercial entity."
- HOW MANY OWNERS (MEMBERS) ARE NEEDED TO FORM AN LLC?
Some states authorize one-member LLCs. The IRS in 1997 implemented "check-the-box" regulations, which allow single-member LLCs to be treated as sole proprietorships for taxation purposes. Such entities will thus be subject to pass-through taxation, as would a sole proprietorship. [Treas Reg § 301.7701-1(a)(4)]
It is also possible to have two members, even though they are related. Trusts or corporation can be a member as well as individuals. Thus, it is possible to have an LLC between an individual and a corporation in which that individual owns, stock, or between an individual and a trust that benefits the individual. The "check-the-box" regulations allow substantial leeway in choosing the method by which the LLC will be taxed. [Treas Reg § 301.7701-3]
- WHAT TYPE OF PROPERTY CAN BE CONTRIBUTED TO AN LLC IN EXCHANGE FOR A MEMBERSHIP INTEREST IN AN LLC?
The LLC acts are not uniform in this respect. Many LLC acts allow members to contribute almost anything of value in exchange for an interest, including cash, property, the right to use property, services performed or an agreement to perform services in the future, or a promissory note or other obligation to contribute capital in the future. However, some states limit capital contributions to cash or property [Fla Stat Ann § 608.4211; Wyo Stat § 17-15-115]; other states specifically prohibit the issuance of an interest in exchange for a promissory note or services to be rendered at a later date [SD Codified Laws Ann § 47-34-19]; and still others do not permit services to be contributed in exchange for an interest in an LLC. [Neb Stat § 21-2614]
- CAN A MEMBER ASSIGN HIS OR HER INTEREST IN AN LLC WITHOUT ANYONE'S CONSENT?
In many cases yes, although the transferee will be an assignee and not a member. Only members can vote and exercise other rights of members, but an assignee, like a member, may receive distributions of cash or property.
While a member in an LLC generally can transfer an LLC interest in whole or in part, the Operating Agreement, Articles, or statute may limit this power. Some state LLC acts prohibit a member from transferring that member's own interest without the consent of all of the other members. Consent may be inferred by a failure to object to a transfer, and the failure to follow formalities by one individual, such as signing and amended Operating Agreement, may not be raised as objection by another member at a later date. [In re DeLuca (Broyhill v DeLuca), 194 BR 65 (ED Va 1996)] Many of the newer statutes require only majority consent, or allow the members to alter the statute's requirement for unanimous consent. In addition, any attempted transfer may be void if: (1) right-of-first-refusal restrictions in the Articles or Operating Agreement have not been complied with, or (2) a transfer of an interest in a professional LLC is attempted to a person or entity not licensed or otherwise eligible for membership.
To ensure that the LLC does not have the corporate characteristic of free transferability of interest, the Articles and the Operating Agreement should either mirror the statutory requ8irement, or if that can be altered, should require the approval of at least a majority in a nonmember.
In conclusion, while it may be possible to transfer the interest to someone without the consent of the other members, the transferee of that interest will not be a member unless the transferee has satisfied the statutory and any other requirements to obtain the status of a member.
- WHAT IS TAX BASIS?
Basis is a tax concept that determines whether any taxable disposition of property creates a recognized gain or loss. It can be summarized as the amount of cash or the fair market value of property a person actually has invested in another piece of property, which may be adjusted by several factors. A taxpayer is, absent an exception, generally subject to tax on the sale or exchange of property unless the cash or fair market value of property received exceeds that taxpayer's tax basis in the property transferred. Basis also can relate to other basis or values. For example, property inherited from a decedent generally has a basis equal to its fair market value at the date of death or alternate valuation date; a done gnerally inherits the basis of a living donor.
For an LLC taxed as a partnership, basis is important because members can deduct certain losses of an LLC allocated to them to theextent of their tax basis in their LLC interest, subject to limitations discussed below. [IRC § 704(d)] A member's tax basis in an LLC interest can never be less than zero; although one often hears the term ‘negative basis,' the term actually means a deficit capital account, which can trigger tax (often depreciation recapture) upon sale, foreclosure, gift, or other nondeath transfer.
- HOW IS A MEMBER'S TAX BASIS IN AN LLC INTEREST CALCULATED?
A member's tax basis in an LLC interest initially is equal to the amount of cash and adjusted tax basis of property contributed by that member to the LLC in exchange for the LLC interest. [IRC § 722] If the member purchased the interest from another member, the purchasing member's tax basis initially would be equal to the amount of cash or fair market value of property transferred in exchange for the interest. [IRC § 742, 1101]
A member's interest in an LLC is adjusted from time to time as follows: increased by the member's distributive share of the LLC's income and tax-exempt income. Increased by the member's distributive share of the LLC's deductions for depletion over the basis of the property subject to depletion. Increased by the member's share of the LLC's recourse (and, in some cases, qualified nonrecourse) liabilities for which no other member is personally liable on. Decreased by the member's distributive share of the LLC's losses and nondeductible expenses, which are not properly chargeable to capital accounts. Decreased by any distributions to the member.
A member's tax basis includes any portion of the LLC's liabilities, unless (1) the debt is nonrecourse to that member and another member is personally liable for all of the debt, or the debt is not qualified [IRC § 752], or (2) the member is not at risk. [IRC § 465]
- DOES AN LLC FILE A FEDERAL INCOME TAX RETURN?
Yes, unless it is a one-member LLC taxed as a sole proprietorship. The LLC, if taxed as a sole proprietorship, files on Schedule E of the Form 1040, the personal tax return, and if taxed as a partnership, is required to file Form 1065 (Partnership Tax Return) annually. Form 1065 is only an informational return, and the LLC must issue a separate Form K-1 to each individual member, which separately state specific items that may be treated differently by each individual member. [IRC § 702] For example, the LLC must itemize capital gains and losses, charitable contributions, dividends, and foreign taxes.
- WHAT ARE THE TAX CONSEQUENCES TO AN LLC UPON THE CONTRIBUTION OF PROPERTY?
An LLC does not recognize gain or loss upon receipt of property, including cash, in exchange for an interest in the LLC. [IRC § 721 (a)] This rule apples whether property is contributed to the LLC upon formation or to an existing and operating LLC. Property, in this context, includes, but is not limited to, cash, tangible and intangible personal property, accounts receivable, licenses, patents, contract rights, and installment notes. The LLC's basis in the contributed property equals the adjusted basis of the property in the hands of the member at the time of the contribution. [IRC § 723] Additionally, the LLC's holding period for the property is equal to the holding period of the member that contributed the property. [IRC § 1223(2)]
- LLC FORMALITIES.
Delaware LLCs have members and, if desired, mangers. Optionally, an LLC can elect to have officers and directors. One person can hold all positions in most states. A Delaware LLC may also hold annual members and managers meetings. Personal and company funds should not be commingled in the same account. Though the required formalities are very few with the LLC, if certain formalities are not followed (e.g.. the LLC is not treated like a separate person from the owners), some states allow the members or/or managers to be held liable debts of the company. LLC formalities, while often necessary, are typically quite simple. So, when you form a Delaware Limited Liability Company, be sure to follow the simple procedures to keep your LLC in good standing. Companies Incorporated provides a list of LLC formalities for clients who utilize our service to form a Delaware Limited Liability Company.
- PUBLIC RECORDING.
Members and/or managers are not required to be listed in the articles of organization. Members information must be kept in the LLC's principal office, which can be located in US or any other country. Members need to be listed in the LLC annual income tax return. When LLC conducts business outside of US and all LLC members are non-US residents, there are no requirements of filing income tax return. Thus, no members information is passed to the tax authorities.
Sample LLC Articles of Organization The provisions that are required in an LLC's Articles of Organization will vary amongst the different states. In general, however, most states require that a limited liability company's articles of organization contain at least the following information: The name of the LLC. The mailing address of the proposed entity. The name and address of a registered agent in the state of filing, this must be a physical address. The name and address of the LLC's organizer. The LLC's stated period of duration or date of termination. Some states may require that your articles of organization list the name and address information for each LLC member. The signature of the Organizer or person filing the articles of organization.
- WHO ARE THE MEMBERS?
The owners of an LLC are called members - not shareholders. And they own membership interests - not shares of stock. A membership interest in usually stated as a percentage. The attributes of the members vary according to the management structure utilized by the LLC, and thus members in one LLC may be similar to partners, while in another, be more like shareholders. For example, if the management is vested equally in the members, then they take on the characteristics of partners. If management is vested in select members, most of the members have attributes of limited partners. If the management is vested in outside managers, however, members possess shareholder-like qualities. Like shareholders in a corporation, the members of a LLC are protected from personal liability in excess of their capital investment. Like the partners in a partnership, members of a LLC can flexibly allocate management responsibilities and gains and losses. The LLC also allows members to contribute passively as in the limited partnership. Unlike the limited partnership, however, where the general partner remains personally liable in the event of a business loss, the LLC allows all members to contribute without risking personal liability. LLC members may typically be individuals, corporations, partnerships or other entities, such as business trusts. As a result, business firms may be able to join forces in creative ways that previously were impractical because of tax, liability and flexibility concerns.
- MANAGEMENT BY MEMBERS OR MANAGERS.
A limited liability company may be managed either by (a) the members or (b) one or more managers. A "member" is an owner of the limited liability company. If a limited liability company is managed by the members, then the owners are directly responsible for running the company. A "manager" is a person elected by the members to manage the limited liability company. In this context, a manager is similar to a director of a corporation, or a member of Congress. A manager can be, but is not required to be, a member. If a limited liability company is managed by managers, then its members are not be directly responsible for running the company. Whether an LLC should be managed by members or managers depends on several factors, including: The number of owners. The type of business. Where the owners are located. How involved the members will be in the operations of the LLC.
Management by members is usually the best option for LLCs that have only one member or just a few members, all actively participating in the affairs of the LLC. If there are many members, on the other hand, including some that do not actively participate in the operations of the LLC (such as silent partners), then management by managers may be the best option. LLCs are structured differently from corporations and have no directors, officers or shareholders. Instead, LLCs have members and managers. A member is similar to a shareholder in a corporation in that the member owns an interest in the LLC. Managers are the people or entities that manage the operation of the organization. Managers are not always required in an LLC. If the LLC does not use managers, the members act as partners in managing the organization and making decisions. If the LLC is to be managed by its members, it operates much like a partnership. Each member has an equal say in the decision making process of the company. If the members choose, they may elect a manager or managers to act in a capacity similar to a corporation's board of directors. These managers are in charge of the affairs of the corporation. Member management is the normal default rule of state law. This means that if managers are not selected in the articles of organization, the members will direct the affairs of the LLC.
- LLC OFFICERS.
Regardless of how a limited liability company is managed, it can still appoint officers to run the day-to-day operations of the company. An LLC is not, however, required to have officers. Officers serve at the pleasure of either (a) the managers, if the limited liability company is managed by managers, or (b) the members, if the limited liability company is member-managed. Members or managers may both be officers. There is no limit on the maximum number of officers, nor is there a limit on the number of offices that a person may hold. In fact, the same person may hold all offices.
- ANONYMITY.
Owning an asset in your own name, such as a business, an investment property or an automobile, provides an easy target for one performing an asset search. Before initiating a lawsuit, it is quite common for an attorney to perform an asset search. If no assets can be located in your name this may decrease the chance that litigation will be pursued. Placing assets in the name of a Limited Liability Company may provide a cloak of privacy between you and those contemplating legal action against you. This privacy is enhanced when "nominee" managers are listed. With the Coddan nominee privacy service, you retain ownership and control of your company. However, you elect Coddan representatives (who have no control or ownership of your LLC) to be listed in the public records.
- REGISTERED AGENT.
Each LLC must have a registered agent, the person designated to accept official notice if the LLC is "served" with a lawsuit. A registered agent must be either (1) an adult living in the state of formation with a street address (P.O. boxes are not acceptable) or (2) a company (such as Coddan) registered with the Secretary of State in the state of formation. As previously mentioned, one of the advantages of forming an LLC in your home state is that any of the members, managers or officers can act as the registered agent. However, there are some advantages to having another person or company act as your registered agent. First, this adds an extra layer of privacy, since the name and contact information for the registered agent is publicly available. Second, this ensures that if your LLC is named in a lawsuit, no one will surprise you at home on a Sunday night with court papers.
- THE REGISTERED AGENT LISTED IN THE LLC ARTICLES OF ORGANIZATION.
Most states require that an LLC have a Registered Agent who maintains a registered office within the state of formation. This Registered Office may be at an address that is different from the LLC's business address (as where the LLC's business office is not located within the state). Most often, YOU may act as registered agent for your limited liability company. Please note, however, that your Registered Agent Address as stated in your Articles of Organization MUST be within the state of formation. Furthermore, the registered agent address MAY NOT be a post office box. The main purpose of including the registered Agent information in your articles of organization is to provide potential claimants against your LLC with a designated person who is authorized to receive service of process on behalf of the LLC. Because your articles of organization will be a matter of public record, potential claimants can merely research public records to retrieve your LLC's registered agent information in order to serve your LLC with a subpoena or summons.
- WHY FORM A DELAWARE LIMITED LIABILITY COMPANY?
The main reasons to form a Delaware Limited Liability Company are lawsuit protection, credibility, tax savings, deductible employee benefits, asset protection, anonymity, the ease of raising capital, creating a separate legal entity for personal protection, a Delaware LLC has a broad range of powers beyond that of a sole proprietorship, small claims court benefits, separate liability for corporate debts, and perpetual duration. When you form a Delaware LLC you create a separate legal person. You are a shareholder. You can control the corporation. However, when the Delaware business is sued you can be protected from being sued personally when your business is a Delaware LLC.
- WHO VOTES IN AN LLC?
Ordinarily, voting interest directly corresponds to interest in profits, unless the articles of organization or operating agreement provide otherwise.
- CAN I SELL MEMBER SHARES?
Transferability: In most jurisdictions, no one can become a member of an LLC (either by transfer of an existing membership or the issuance of a new one) without the consent of members having a majority in interest (excluding the person acquiring the membership interest) unless the articles of organization provide otherwise.
- DO I NEED AN OPERATING AGREEMENT?
To validly complete the formation of the LLC, members must enter into an Operating Agreement. This Operating Agreement may come into existence either before or after the filing of the Articles of Organization and may be either oral or in writing in many states. We suggest EVERYONE put it in writing.
- RAISING CAPITAL.
There is a greater source of capital available to LLCs than to partnerships or proprietorships. Because the LLC is separate from the owners, people tend to be more willing to invest money without accepting liability or responsibility for company business. The Forbes 400 list of wealthiest Americans are full of individuals who hold the highest percentage of their wealth through ownership of companies they or their family members started. Many sole-proprietorship or partnership businesses are sold for one to two times annual earnings. Whereas, many companies are valued at between 12 to 25 times annual earnings or more.
- IS A LIMITED LIABILITY COMPANY BETTER THAN A CORPORATION?
The answer to this question varies on a case-by-case basis. Which business entity is best for you depends upon your situation and your goals. Both LLCs and corporations provide the "protection" discussed in the previous question. However, each is taxed differently. For instance, an LLC is generally taxed as a partnership or sole proprietorship. Therefore, while an LLC does not have to worry about the "double taxation" that may be applicable to corporations, members of an LLC must pay self-employment tax. Further each of these entities, as well as other forms of business entities, have characteristics that may be advantageous or disadvantageous to you.
- HOW IS THE FORMATION OF AN LLC DIFFERENT THAN A CORPORATION?
With a LLC, Articles of Organization are filed with the state rather than Articles of Incorporation. Also, instead of bylaws, LLCs generally utilize an operating or management agreement to set forth the details on how the organization is to be managed.
- APOSTILLE.
For countries where apostille is not available, because are not part of Hague Convention number 12: Convention Abolishing the Requirement of Legalization for Foreign Public Documents, the documents can be authenticated by the customer county's consulate or embassy. Procedure: The documents would need to be first notarized, then certified by the State of Delaware, then authenticated by the US Department of State and then sent to the consulate for authentication.
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