This is the second part of a two-part series.  Read Limited Liability Company, Part 1 here.

HE SAYS:

Unless otherwise stated in the Articles of Organization, management of the LLC is vested in its managers as designated by the members; and the managers may, but need not, be members.  The managers of the LLC make decisions by voting at meetings, that must be held at least once a year, after notice or waiver of notice; and, unless otherwise stated in the Articles of Organization, a quorum is established when a majority of the managers are present.

Importantly, and similar to a corporation, the members and managers of a LLC are not liable for any debts, obligations or liabilities of the LLC or of each other, whether arising in tort, contract or otherwise, solely by reason of being a member or manager or participating in the conduct of the business of the LLC.  However, any judgment creditor of a member may seek payment of the debt from the member’s interest in the LLC.

A LLC is dissolved either as called for in the Articles of Organization or upon the consent of a majority of the members.  In the event of a dissolution, the assets of the LLC are first distributed to the creditors of the LLC and then to the members in proportion to their capital contribution to the LLC.

A LLC is of particular benefit to a single member in that, for Federal Income Tax purposes, a single member LLC is treated as if it did not exist.  This means that a Federal ID Number is not required, a Federal Income Tax return for the LLC is not required, and the income from the LLC is passed directly to the member’s individual tax return.

The summaries contained in Part I and Part II are based on the laws of New York State and anyone seeking to start a Limited Liability Company is recommended to first obtain the advice of a knowledgeable attorney and accountant.

WHAT DO YOU SAY?

HE SAYS:

In addition to the usual legal forms under which businesses may operate, such as partnerships and corporations, the law also recognizes, as a separate legal entity, Limited Liability Companies.

A Limited Liability Company (LLC) is created when one or more people execute and file Articles of Organization with the Department of State.   The valid formation of a LLC also requires publication or notice in newspapers within the county in which the LLC maintains its office.

Similar to the powers of a corporation, a LLC is empowered, among other things, to sue or be sued; purchase, own, sell, assign and encumber real or personal property; borrow money and enter into contracts; maintain employees; and otherwise conduct its business.

The owners of the LLC are called members and the extent of their ownership interest is measured by the amount of their capital contribution to the LLC, much as a shareholder’s ownership in a corporation is measured by how many shares the shareholder purchased.

Unless otherwise stated in the Articles of Organization, profits and losses of the LLC are allocated, among the members, proportionately, on the basis of the value of each member’s monetary contribution to the LLC.

In the next installment we will discuss the management and related issues of an LLC.

WHAT DO YOU SAY?