What is a Limited Liability Company?

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Limited Liability Company -- A Limited Liability Company, or LLC, is a legal entity that is created under state laws. Generally, a LLC is referred to as hybrid entity because it borrows limited liability protection characteristics of the Corporation and  the tax efficiencies and operational flexibility of Partnerships. In Arizona, LLC's are formed by following Arizona Revised Statutes Title 29 Chapter 4, also known as the Arizona Limited Liability Company Act.  Specifically, Arizona Revised Statute 29-631 states that one or more persons may form a limited liability company by signing and filing with the Arizona Corporation Commission an original copy of the articles of organization for the limited liability company.

GENERAL BENEFITS

There many reasons why business owners choose to undertake LLC planning and organization. The simplest reason may be that segregating business assets for the purpose of asset protection and invocation of protections afforded by state law.

Other benefits of setting up an LLC are:

  • Provide Asset Protection and Protect Against Future Creditors of Members
  • Restrict the Rights of Non-Members to Acquire Member Interests
  • Allow for Flexible Business Planning
  • Easier to Make Loans or Purchase Other Membership Interests

Under state law, LLC's have distinct features that affect both member liability for the LLC and creditor rights involving or even a separate liability of an individual who happens to be a member.  These character traits separate LLC's from non-entity businesses like sole proprietorships.

LIMITED LIAIBILTY PROTECTION

Generally, LLC's share a similar trait to that of the corporation, in that the members do not have personal liability for the enterprise. Rather, liability for company activities is generally limited to the company assets, for example the member's investment into the company. In addition, member do not ordinarily have personal liability for company obligation unless there is a personal guarantee. This generally means that if the LLC incurs debt or is sued, members' personal assets are usually exempt. This is similar to the limited liability protections afforded to shareholders of a corporation.

TAX TREATMENT

Additionally, federal and state law may allow for different tax treatments. For example, a LLC may be taxed as a disregarded entity, similar to that of a sole proprietorship.  If the LLC has one or members, an S or C Corporation designation may be elector, or a partnership designation may be elected if the LLC it has two or more members.

PROPER LEGAL ASSISTANCE

Therefore, when deciding which route or business entity is appropriate for your business planning, remember that the advice of an attorney is always recommended.  Although many individuals scourer the internet for free information, only a competent business law attorney can advise you of the pros and cons of which entity is proper for your unique circumstances.  Additionally, many of the benefits associated with the LLC require skillful drafting in the documents, additional company documents, business operations with the compliance of standard practices and an understanding of these techniques that only a business law attorney can provide.  Simply put, setting up an LLC may require more than just filing a document. Improper formation documents, lack of formalities or questionable operations may allow other business law attorneys to have your LLC disregarded for purposes of litigation and eliminate the limited liability qualities.

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Summary
What is a Limited Liability Company?
Article Name
What is a Limited Liability Company?
Description
A Limited Liability Company, or LLC, is a legal entity that is created under state laws. Generally, a LLC is referred to as hybrid entity because it borrows limited liability protection characteristics of the Corporation and  the tax efficiencies and operational flexibility of Partnerships. In Arizona, LLC's are formed by following Arizona Revised Statutes Title 29 Chapter 4, also known as the Arizona Limited Liability Company Act.  Specifically, Arizona Revised Statute 29-631 states that one or more persons may form a limited liability company by signing and filing with the Arizona Corporation Commission an original copy of the articles of organization for the limited liability company.
Phoenix Trusts & Wills Law Firm
About the Author

Robert W. Boland, Jr., J.D., LL.M., is the Managing Partner at Boland Law Group, PLLC, and focuses his practice in the areas of tax planning, and business planning and tax representation. For over 40 years, Mr. Boland has been advising high-net-worth individuals and families nationwide in all aspects of estate planning, including tax-advantaged transfers of assets, multi-generational planning, the taxation of trusts and estates, charitable giving, pre-nuptial and post-nuptial planning, and issues relating closely held businesses. Mr. Boland has advised a broad range of clients, including those with inherited wealth, owners of closely held businesses and national clients with multi-jurisdictional contacts. In his planning practice, he works closely with investment advisers, insurance planners and accountants to ensure a coordinated approach to his clients' needs.

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