A limited liability company (LLC) is a type of business structure or business entity. Creating an LLC is important for many business owners because of liability protection and because an LLC has a separate existence from the business owners. This can make business succession easier if an owner passes away or wants to pass on the company to his children or others.
It is important to understand how LLCs work and whether an LLC is the right choice for your company. You can also consider alternatives such as C-corporations, S-corporations or family partnerships.
As you decide whether a limited liability company (LLC) makes sense for your situation, you need to think about the current state of your business, your future goals for your company, and your business succession plan for transferring your business and assets to new owners and allowing your business to live on after you are gone.
Parman & Easterday can provide experienced help with business planning, including determining if an LLC is the right choice for you. If you are an entrepreneur and want to protect your business and personal assets, call us today at (405) 703-9987 or (913) 385-9400 or contact us online to find out more about how we can assist you.
What is a Limited Liability Company (LLC)?
A Limited Liability Company (LLC) is described by the Small Business Administration as a “hybrid type of legal structure.”
An LLC is an alternative to a sole proprietorship or partnership, where there is no legal distinction between owners and the company. If you are a sole proprietor, your business and you are seen as one-and-the-same. A business bankruptcy is a personal bankruptcy, and a business lawsuit puts you at risk. The same is true for a partnership, with the added wrinkle that you are also responsible for debts your partner may take on or lawsuits against your company resulting from your partner’s actions.
Unlike a sole proprietorship or partnership, an LLC is an independent entity, separate and distinct from its owners. It is described as a “hybrid” business structure by the SBA because this separation offers liability protections similar to a corporation, while the tax rules and operational flexibility are more similar to a typical partnership.
An LLC is formed by creating a name for your business and filing appropriate paperwork with your state. LLCs are organized and recognized on the state level, so articles of organization must be filed in the state where you want your LLC to exist. In Kansas, you can visit the website of the Kansas Secretary of State to obtain filing forms to create your LLC.
LLCs and Business Succession
Because an LLC exists independently of its owners, it should be easier for ownership of the company to be transferred. This is not necessarily the case, depending upon how the LLC is formed. Unlike with a corporation, in which shares can usually be easily transferred to new owners, an LLC may not always have a mechanism for business succession.
If someone leaves the company for any reason, including death, the LLC may dissolve and a new one may be formed with remaining owners. However, this does not have to be the case. As the Small Business Administration explains, provisions may be included in an LLC operating agreement to prolong the life of the company, even in situations where someone leaves it.
You need to think about business succession matters as you create an LLC and go through the formal process of creating this business structure. Your attorney can advise you whether an LLC will be effective in maintaining company operations after you are gone, and help you explore alternatives such as incorporation.
Getting Legal Help with a Limited Liability Company (LLC)
Deciding how to structure your business is complicated as you need to consider how the company will operate during your lifetime and what will happen when you want to leave the business. You need to make the right choice, as the structure you choose will have a profound impact on many aspects of your business operations.
Parman & Easterday can provide you with advice on whether a limited liability company (LLC) is your best option or whether other alternatives are preferable. Give us a call today at (405) 703-9987 or (913) 385-9400 or contact us online to find out more about an LLC is and whether it is right for you.
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