LIMITED LIABILITY COMPANY HISTORY It all started in Germany.
The limited liability company is a relatively new institution--a triumph of comparative law in action--with its origin generally attributed to the German law of 1892, authorizing the Gesellschaft mit beschrnkter Haftung (GmbH). While drawing some inspiration from the English practice of the private limited company, it was nevertheless an original creation. However, the claim that it was without precedent is negated by the fact that the State of Pennsylvania had enacted a law in 1874 authorizing the limited partnership association, which was extensively used. This form of business organization bears a striking resemblance to the limited liability company current today in Europe and Latin America. From Germany to Europe and Latin America.
LLCs are neither new nor strange to the business community in the civil law countries of Europe and Latin America. Germany not only was the first civil code country to enact this legislation, but Germany's enactment became the discussion focal point for the countries which subsequently adopted this commercial enterprise. Once established in Germany, the concept of the LLC had a very fast and active growth. Success in Germany soon caused the German model act to become the focus of extensive debate. Within a short period of time after enactment in Germany, the following countries joined the limited liability bandwagon: Portugal (1917); Brazil (1919); Chile (1923); France (1925); Turkey (1926); Cuba (1929); Argentina (1932); Uruguay (1933); Mexico (1934); Belgium (1935); Switzerland (1936); Italy (1936); Peru (1936); Columbia (1937); Costa Rica (1942); Guatemala (1942); and Honduras (1950). In France, by the late 1940's, the limited liability entity known as societes de responsabilite limitee was more popular than the more traditional stock corporation and comprised approximately one-third of all French societies. Four basic characteristics of early LLCs.
In addition to the limited liability, the LLC laws of each of the above countries have the following four basic characteristics which distinguish this entity from other business forms: (1) all require some use of the word "limited" in the entity's name; (2) the entity is given full juristic personality; (3) the partnership concept of delectus personae, permitting a member to control admission of new members to the entity; and, (4) codes that allow limited liability firms to be dissolved by death of a member, unless otherwise expressly stated in the articles of association; in addition, some provide for probate or sale of a deceased's share. In the United States.
Several states passed legislation in the United States creating entities similar to the LLC. In the last quarter of the nineteenth century, Pennsylvania, Virginia, New Jersey, Michigan and Ohio enacted legislation permitting "limited partnership associations" or "partnership associations." These associations were created to provide a form of limited liability coupled with some of the beneficial characteristics of the partnership association. These new LLCs became an alternative to Sub Chapter S Corporations and Limited Partnerships, with the enabling legislation for these associations requiring that either the principal office, or place of business, be located in the enacting state. As a consequence of this restrictive legislation, these associations were not attractive to many entities active outside of these localities. They have not been used extensively. THE MODERN LIMITED LIABILITY COMPANY The modern LLCs began in Wyoming.
In 1977, Wyoming became the first American state to enact a true LLC act modeled after the 1892 German GmbH Code and the Panamanian LLC. The Wyoming LLC Act permits the formation of LLCs organized for any lawful purpose except the business of banking and insurance. In addition to limited liability, the Wyoming Act has the same four basic characteristics of the European and Latin American codes that distinguished this entity. First, WYoming requires a form of the word "limited" in the entity's name. Second, the entity is given full juristic personality. Third, the partnership concept of "delectus or intuitus personae" which permits a partner to control admission of new partners to the partnership is present. Fourth, Wyoming's Act provides that LLCs must be dissolved by death of a member and provides for probate or sale of a deceased's share. In addition, and perhaps most importantly, the Wyoming Act contains a provision that excludes members or managers from litigation involving the business. Most LLC acts have followed this lead. Fastest growing business entity.
The LLC, while the newest form of business entity, is rapidly becoming one of the most popular ways for new and small businesses to operate. It is often described as a hybrid between a corporation and a partnership because it limits personal liability, like a corporation, while providing a simpler and more flexible structure than most other forms of business. A single member LLC is taxed on the federal level the same as a sole proprietor, while a multimember LLC is taxed on the federal level the same as a partnership. An excellent choice.
Since a huge number of small businesses are sole proprietorships and partnerships, an LLC is frequently an excellent choice for these types of businesses, because it retains most of the benefits of a sole proprietorship or partnership with the added benefit of limited liability like a corporation, with very little in the way of extra requirements. Pass-through taxation.
The lLLC offers limited liability protection and pass-through taxation as its income is not taxed at the entity level; however, a tax return for the LLC must be completed. Any income or loss of the LLC as shown on this return is passed through to the owner(s). The owners, also called members, must then report the income or loss on their personal tax returns and pay any necessary tax. Legal existence of an LLC.
As with corporations, the LLC legally exists as a separate entity from its owners. Therefore, the owners cannot typically be held personally responsible for the debts and liabilities of the LLC. Less paper work than a Corporation.
Paperwork comes in two parts. 1) the initial papers that must be signed when your minutes and record book is first established, and 2) the ongoing minutes and resolutions of company decisions. This is far less than what is needed with a corporation, which has minute and resolution requirements for not only shareholder meetings, but also for director meetings, officer meetings, and general decision resolutions. In addition, corporations require several other records, including stock and stock transfers, to be kept up-to-date. When someone tells you that running an LLC requires a lot of time and paperwork, they simply do not know what they are talking about. Advantages of an LLC:
▪ LLCs allow for pass-through taxation
▪ Members on an LLC are not typically held personally responsible for the debts and liabilities of the business
▪ LLCs generally have no ownership restrictions
▪ LLC members have flexibility in structuring the management of the company
▪ An LLC does not require as much annual paperwork, or have as many formalities, as a C corporation or an S corporation
▪ Written consent of LLC members must be obtained prior to increasing ownership in the company
▪ Potential customers may perceive an LLC as a more professional entity than a sole proprietorship or partnership How an LLC is official created.
To create an LLC the proper formation documents, typically called the articles of organization, must be filed with the appropriate state agency and the necessary state filing fees paid. That is all there is to establishing an LLC business in a state. What you get for the filing fee is the right to use the name you have filed, and the right to operate that business within the state in which the papers were filed. It does not, however, provide you with the other documents and structure needed to be protected by the limited liability that an LLC can provide. THE STRUCTURE OF A LIMITED LIABILITY COMPANY Members or Managers.
An LLC may be run by either Members or Managers. When filing an LLC with any State, they require knowing if the LLC is Manager-based (manager-run) or Member Based (member-run). Their are advantages and disadvantages to both choices, however, most knowledgeable formation experts recommend a Member-Based, member-run LLC. Value of the LLC Structure.
• The LLC structure can be used to hold property and transact any type of business. It can be amended from time to time to change the type of business or add other business aspects to it.
• LLC s are similar to partnerships, limited partnerships, "S" corporations, and Trusts.
• No Separate Taxation. LLCs have become a common business structure in the U.S. since 1998, when the IRS ruled that LLC's would be taxed as partnerships
• No Personal Liability. In 1998 the IRS ruled that none of the members or managers of an LLC would be personally liable for any of the company's debt.
• Pass-Through Entity. An LLC is a flow-through entity, passing all profits and losses directly to its members. Individual members are therefore taxed at their personal tax rates.
• LLCs Require Only One Member. Until recently, there could be no one-member Limited Liability Company. However, as it now stands every state in the U.S. allows for one-member LLCs.
• Numerous Entities can be Partners in an LLC. In cases where you want to be the single member, but for some reason want to have an entity as a second member, you can have a combination of you and your corporation, you and your trust, or two corporations. In essence, you can be your own partner. In fact, any entity can be one of the listed members of an LLC.
• Two Corporations start an LLC. Taking two corporations that you control and forming an LLC will allow the profits or losses from the joint venture to flow directly into your respective corporations. The taxable entity in this case would be the corporation. This is a simple way to bring two corporate structures together and keep at arms-length from the business at hand.
• Starting out in business, home-based business people usually start their company structure as either a Sole Proprietorship or Partnership. These structures can be started very easily and for very little cost. However, one of the big drawbacks to these structures involves the sharing of assets between you and your company. In Sole Proprietorships or Partnerships, the assets of company are legally joined with your personal assets. That means that in civil litigation situations, your personal property can be vulnerable to litigation settlements or judgments; however, in an LLC, your personal property (assets) cannot be reached through the company, but are held separately and secure from attacks on the company. HOW EARNINGS ARE DISTRIBUTED IN A LIMITED LIABILITY COMPANY In a Limited Liability Company, earnings are distributed among the members (owners) according to the structure set up in the Operating Agreement as a result of approval in the Formation Minutes. Usually this structure is a 50%-50% split, but it can be anything the members decide. At the end of the year, the profit or loss of the company is divided among the members according to this pre-arranged percentage split. Each member then receives his or her share (on a IRS K-1 form) and claims it on his or her individual income tax (IRS 1040 form). The LLC itself is not taxed. This is what is called pass-through taxation. MINUTES/RESOLUTIONS FOR A LIMITED LIABILITY COMPANY Purpose of Minutes and Resolutions
Since a Limited Liability Company has a life of its own, members, managers, and officers of the LLC (though they might in fact own the LLC) must obtain approval for certain actions. This approval is obtained during a meeting of the members (or managers) in which resolutions are presented and seconded and approved. These resolutions are then entered into the minutes of the meeting and forever contained in the Minutes (or Record) Book of the Company. Types of Resolutions Required in Minutes
Resolution to Obtain Corporate Credit Card
Resolution to Open Bank Accounts
Resolution to Acquire Assets of Business
Resolution to Spend Money on Equipment
Resolution to Borrow Against Accounts Receivable
Resolution to Assign Lease
Resolution to Authorize Borrowing on a Line of Credit
Resolution to Authorize Contract
Resolution to Authorize Franchise Agreement
Resolution to Authorize Sale-Leaseback transaction
Resolution to Borrow Against Accounts Receivable
Resolution to Borrow Capital
Resolution to borrow from a Designated Bank
Resolution to Borrow on Inventory and Equipment
Resolution to Commence Litigation
Resolution to Convert Excess Depreciation to Surplus
Resolution to Defend Suit
Resolution to file for Receivership
Resolution to Hire an Employee
Resolution to Issue Option to Purchase Shares
Resolution to Issue Release
Resolution to Lease as Corporate Lessor
Resolution to Lease Equipment
Resolution to Purchase or Lease Motor Vehicles
Resolution to Lease Premises
Resolution to Loan Funds
Resolution to Purchase Equipment
Resolution to Purchase Real Estate
Resolution to Retain a Professional Consultant
Resolution to Retain an Accountant
Resolution to Retain an Attorney
Resolution to Sell Assets Subject to Shareholder Approval
Resolution to Sell Business Assets
Resolution to Sell Company Shares
Resolution to Acquire Shares of Stock
Resolution to Appoint a Purchasing Agent
Resolution to Sell Equipment
Resolution to Settle Litigation
Resolution to Enter into or Terminate a Contract
Resolution to Hire, Promote, or Terminate an Employee
Resolution to Terminate Lease
Resolution to Waive Restrictions on Transfer | 
