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Introduction to the Limited Liability Company


This is a brief insight into a Limited Liability Company. If you are undecided about which type of business entity is best for you, click here to see what entity is right for you, so that you understand your options.

Either you have made a decision to use an LLC or you are now moving towards the decision that an LLC is the right entity for you. The Limited Liability Company is the hybrid type for business structure. As much as an LLC provides protection that is not afforded to you as an individual, you should be aware that problems might arise among partners, which can cause unwanted liability. Most people do not enter into business agreements knowing that the members or partners will be fighting each other over the assets and liabilities of the company. However, it happens.

An LLC is governed by the state law that the business is filed in and secondarily by the Uniform Limited Liability Act.

An LLC has to have a beginning, which is a formal filing that includes:

1. payment to the Secretary of State,

2. a registered agent (albeit yourself or a professional),

3. a place of business (albeit your place or the place of the registered agent),

4. a purpose for the business,

5. at least one member and

6. dissolution (either by statutory law, which varies state to state, or by membership agreement in the Operating Agreement).

Besides this, you should have a business plan, although it is not required by law.

After you have gone through the above procedure and receive a document called the Articles of Incorporation (keep this handy and on file), you will need to think about how you operate your company. You will need an Operating Agreement (especially if more than one person is involved.) Part of the liability lies in the efficiency of the Operating Agreement, so you will need professional advice or consulting, usually from an attorney.

Here is a general list of questions that you must answer. (This is not intended as legal advice).

1. Who is in the LLC and what percentage does each person have? (Sometimes referred to as the distribution of equity)

LLC's have members, not shareholders. Each membership in equity generally derives the same in voting membership and in capital, and capital can be gains and it can also be loss.

2. What is the role of each person? Who manages the LLC?

Deciding who does what is important, but you should determine who has Executory Roles and who does not. Greater liability may be extended to those with Executory Roles and majority memberships.

3. What type of clauses should be in the Operating Agreement?

This question requires professional advice. For more information, click the link to Operating Agreements. This is the most important aspect of your new business and company.

The Paperwork

Many LLC's use accountants for most of their paperwork. Record keeping is important and can be confusing when paying employees, filing taxes and government-required forms. This is the downside, but necessary if you own an LLC. The losses of your Limited Liability Company do not flow through to deductions on a person's personal income tax.


Where you choose to bank is a multifaceted question, but you must obtain an Employee Identification Number EIN to open a bank account. This number is filed under the social security number of someone in the company and designated as the EIN for many important transactions including all banking.

This brief overview is only an introduction. There are numerous articles on this site that will provide information that is more detailed. If you would like a free 20-minute consultation, feel free to call us at TrustMakers.