LLCs are one of the most popular types of entities in the United States today. Offering the flexibility and freedom-from-formality that many business owners crave, they can be structured to serve unique business needs. Since their humble beginning in Wyoming, LLCs have become so popular that nowadays more LLCs are being formed and registered in the states than corporations.
Our LLC handbook provides a handy overview of topics related to LLCs for business owners and legal professionals. It provides the fundamentals for understanding the nature of LLCs and their structure. It also includes a glossary of LLC-related terms for quick reference. Equipped with this information, you’ll be better prepared to set up the management control and other features of your LLC.
Table of Contents
- Forms of Business Organizations
- Nature and Characteristics of an LLC
- Formation of LLCs
- Changes in Limited Liability Company Structure
- Tax and Reporting Requirements
- Foreign Limited Liability Companies
- A Glossary
Introduction to LLCs
The law of business organizations has drastically changed over the past three decades due to the creation and increasing popularity of the limited liability company (LLC). From its humble beginning as a piece of special interest legislation in Wyoming, the LLC has grown into such a popular vehicle that today there are many more LLCs being formed each year than corporations.
The limited liability company is a “hybrid” entity, created to provide the liability benefits of a corporation, with the tax benefits of a partnership. The first modern limited liability company was actually created in Germany in 1892. The concept spread throughout Europe and South America, but it was not until 1977 that the first LLC Act was passed in the United States.
The concept did not spread to the other states (other than Florida), because it was not known if the Internal Revenue Service would tax an LLC as a partnership. However, in 1988, the IRS ruled that it would classify a limited liability company as a partnership if the LLC had fewer corporate characteristics than partnership characteristics. Following that ruling the remaining states began to adopt LLC Acts.
Although LLCs became available nationwide, many business people were reluctant to use them because of lingering uncertainty over whether a company with the characteristics they desired would be taxed as a partnership.
However, that uncertainty was eliminated in 1997 when the Treasury Department’s “check-the-box” regulations went into effect.
Today, use of the LLC is so widespread that any legal professional dealing with a start-up or continuing business ventures must be familiar with this type of organization.