Limited Liability Company – Advantages and Disadvantages
A Limited Liability Company (LLC) is a legal entity, which may be treated as a partnership for purposes of taxation, while enjoying the limited liability of a corporation.
It is common to choose a Limited Liability Company when considering joint ventures; this is especially the case between German and American businesses.
LLC shareholders are called “members”. These members are comparable to stockholders in a corporation and limited partners in a limited partnership.
We regularly establish LLCs and form Operating Agreements for our clients. The Operating Agreement outlines procedures, as well as the rights and privileges of the members as well as tax procedures, as outlined by state and federal tax laws.
According to our clients’ wishes, we establish an Operating Agreement, which complies with a Limited Liability Company in the U.S., as well as a corporation or a partnership with German tax authorities in mind. In order to be sure, the Operating Agreements also comply with the federal regulations in the U.S with regard to liability restrictions.
This opportunity is especially significant with regard to the importance of the German tax category.
Establishment of a LLC in the U.S
In order to establish a Limited Liability Company in the U.S. you must also be clear as to which U.S. federal state you wish to establish your business in, with regard to:
- Your business objectives
- Your customers
- Lawful regulations
- Tax laws
Furthermore, with regard to an American Limited Liability Company, you must prepare and submit what is known as the Articles of Organization.
With regard to the Articles of Organization, you must be especially careful when you provide your business objectives.
“The purpose or purposes for which the limited liability company is formed is to engage in any lawful act or activity within the purposes for which a limited liability company may be formed under the Massachusetts Limited Liability Company Act.”
On the other hand, you should not formulate business objectives that are too strict, which makes further business expansion and future business activity incompliant with your original objectives. If strict objectives are established, then you put your Limited Liability Company at risk.
An LLC in the U.S. may have two or more members. An LLC is federally regulated, but is also regulated differently from state to state. Some states, such as Massachusetts allow Single Member LLCs.
This is especially beneficial with regard to Germans, who own a German GmbH and who would like to be considered a member in an LLC in the U.S. It is important to establish the number of members and to discern which state best suits the company and it’s members.
Advantages
- Tax benefits
- Limited liability
- Low start-up costs, as with corporations
- The possibility of choosing a special name
Disadvantages
- It is more difficult to transfer ownership, than it is with a corporation
- Filing the necessary forms, differs from state to state
- Dissolving an LLC:
- Must be done by the date established in the Articles of Organization
- Must be established with the entrance of the Operating Agreement
- A vote of consent from 2/3 of the members
- According to the respected state procedure