Limited Liability Company 101

By Tom Loonan | Business Law

One of the most widely used business entity types is the limited liability company (LLC). This is often a preferred entity due to its flexible management requirements and ease of operation coupled with the strong liability shield provided to members. The LLC is formed by filing articles of incorporation with the state. In addition to the articles of incorporation members of an LLC will agree to an operating agreement, often in writing, setting forth the governance rules of the entity including management, transfer of interest, and distribution of profits and losses.

The LLC provides its members personal liability shield from the liabilities of the business. Unique to the LLC is the ability of the members to determine how the entity will be managed. While there are some formalities associated with the operation of the LLC’s many of these may be adjusted by agreement of the members. Particularly, members may choose whether the business will be managed by the members collectively, appointed managers, or a board of directors/governs. All formalities related to the operation of the LLC will be provided for in the operating agreement, which may be personally tailored to the desires of the members.

Similar to corporations, LLC’s may choose how the entity will be taxed. Unless elected otherwise, members of the LLC are taxed similar to a general partnership but the members may elect to be taxed as an S-Corp or C-Corp. The c-corporation must pay taxes for the corporate profits and each of the shareholders are taxed on the dividends they receive from the entity. The s-corporation allows for pass through taxation meaning that the entity profits and losses pass through to its shareholders who file on their own personal returns, there is no corporate level taxation for s-corps. Specific determinations regarding the most appropriate tax designation for an entity are best handled on a case-by-case basis to allow for careful consideration as to what will best serve the business and its owners.


Contact us today if you have questions regarding the formation of this type of business entity or other business entities.

You can also call our Stillwater, MN office at 651-429-2878 or Hudson, WI office at 715-386-3733.

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