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d.l.hall,attorney,pllc 14555 North Scottsdale Road Chiricahua Mountains Call (480.596.4045) or email |
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d.l.hall,attorney,pllc 14555 North Scottsdale Road Chiricahua Mountains Call (480.596.4045) or email |
What is a Limited Liability Company?
You may do business in various entities, or forms of association. These include the corporation, sole proprietorship, joint ventures, partnerships, limited partnerships, and limited liability companies. A limited liability company is an independent legal entity with an existence separate and apart from its owners, the members. A Limited Liability Company is a relatively new business structure allowed by state statute.
Owners of an LLC are called members. Members may include individuals, corporations, other LLCs, and foreign entities. There is no maximum number of members. A single member may also form and own an LLC.
How is a Limited Liability Company Created?
An Arizona limited liability company can be created only by or under authority from the state. An LLC only exists when the Arizona Corporation Commission files the articles of organization submitted to it by the incorporators.
Arizona Limited Liability Company Law
Title 29 of the Arizona statutes control Arizona limited liability companies. These statutes are similar to other state limited liability company acts, but contain many critical differences. Like a regular corporation (a C corporation), an LLC provides limited liability to its owners, but taxable income or losses of the business will generally pass through to the owners (but any such losses may not always necessarily be deductible, due to the "at-risk" and "passive loss" limitations of the tax law). An LLC is more like an S corporation, providing for a pass-through taxation of income or losses, as well as limited liability. It is easier to qualify to be an LLC, while, in many situations an S corporation cannot be chosen (such as when there are corporations or partnerships as shareholders; the entity owns 80% or more of the stock of another corporation; ore when the entity has more than one class of stock).
Member Liability
Similar to a corporation, LLC owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.
Tax Treatment
Tax treatment of a limited liability company depends on choice. The IRS allows any LLC to choose whether it wished to be taxed as a partnership or a corporation, simply by filing an IRS form and "checking the box" as to what kind of taxable entity it wanted to be. Single member LLCs, are ignored as entities for tax purposes, the same as a sole proprietorship, unless it chooses to be taxed as a corporation (C or Subchapter S). Multiple member LLCs will be treated by default as a partnership, unless the owners or members of the eligible entity elect corporate tax treatment (and file Form 8832).
Practical Difference from Corporations
An Arizona LLC presents a simpler form of business to operate, in terms of legal formalities, than a corporation. An Arizona corporation must hold annual shareholder and board of director meetings, prepare minutes and resolutions, and file annual reports with and pay an annual fee to the Arizona Corporation Commission. An LLC does not have to follow these formalities; but, as a practical matter, should document its operations, especially when there is more than one member. All agreements between members, whether oral or written, can be considered to be part of an LLC's operating agreement. The better practice is to document, in writing, all member agreements.
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This Web site has been prepared by d.l.hall,attorney,pllc for informational purposes only and is not legal advice.Readers should not act upon this information without seeking professional legal advice.
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