LLCs seem to have become “all the rage” these days. The initials, “LLC” stand for Limited Liability Company. LLCs are, what lawyers call, “statutory creatures,” meaning that they have been created by a statute or law passed in that state. An LLC combines certain attributes of partnerships and corporations. In most cases, they don’t have the same more formal requirements as a corporation (i.e., there are no mandatory shareholder meetings – in fact, ownership in LLCs isn’t represented by stock), but they still do offer personal liability protection like a corporation. For purposes of taxes, LLCs can be treated like a partnership. Unlike corporations, though, LLCs in some instances don’t have the longevity because when a member of the LLC dies, goes bankrupt or leaves the business, it usually dissolves.
An LLC is created by preparing and filing Articles of Organization with the Secretary of State along with the appropriate filing fee (here in Massachusetts the filing fee is currently $500). While it may not be required under some state laws, an Operating Agreement can then be prepared. In its most basic sense, an Operating Agreement is a contract signed by the Members, and sometimes the Managers, of the LLC that outlines various aspects of the LLC’s business structure including the financial and managerial rights and duties of the Members and Managers, and the distribution of profits, to name just a few. LLCs that do not have an Operating Agreement will be run by the default provisions of the state’s LLC law rather than what the business owners decide.