Limited liability companies are businesses that have the benefits of a corporation but the tax freedom and management style of a partnership. They first became popular in the 1980s when organizations wanted to give members limited liability while avoiding the double taxation of a corporation. By 1991, every state had a law allowing the creation of an LLC.
What Is Limited Liability, and What Does it Mean?
Simply put, limited liability means that associates aren’t liable for damages exceeding the initial investment, and won’t have to pay more if the company is still in debt after that point. An LTD lawyer in San Diego will tell a client that an LLC is a way to limit the risk of investing. However, limited liability does not preclude owners from their share of negligence liability.
How are Limited Partnerships and Limited Liability Companies Different?
The biggest difference is the level of control. In limited partnerships, each partner’s liability is limited unless they are in control of the actions of the company; at that point, the limited liability is lost. In a limited liability company, partners’ liabilities are limited regardless of the level of control retained.
If the LLC has more than two members, it can be treated as a partnership, or a corporation. If an LLC asks for partnership status, it does not pay income taxes, and each member claims their share of profit and loss on an individual tax return.
A partnership may become a limited liability company by submitting articles of organization, which contain disclosures on the partnership. A corporation may also convert to an LLC, and an LLC may convert to a corporation if all legal requirements are met. Mergers between state and foreign LLCs, stock corporations, partnerships and trusts are permitted as long as the merger meets all applicable requirements.
I’m Starting a Business, do I need an LTD Lawyer?
Starting your own business is difficult, but it can also be extremely lucrative. To understand the rights and responsibilities of your organization and your business, it is best to share your ideas with an LTD lawyer in San Diego. A lawyer who handles LLC cases can assist with incorporation, and they can also explain the organizational and taxation benefits of the LLC structure.
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