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What is an LLC?

Posted by Giselle Ayala Mateus | Dec 02, 2020 | 0 Comments

An LLC or Limited Liability Company is a form of business organization that provides more flexibility than a corporation. Regardless of the multiple reasons that can make a person choose a corporation over an LLC, an LLC offers business owners the possibility of organizing their enterprise without the burden of the formal management requirements associated with corporations. 

An LLC can be managed by its members (LLC Member-Managed) or it can be managed by a manager (Manager-Managed) named by the members of the LLC. In contrast with a corporation an LLC does not need a Board of Directors, business owner can get involved with the day to day activities of the business and is not required to hold annual meetings. 

Should I form an LLC?

Whether the LLC is the right entity for your business or your venture depends on many factors. There are tax advantages associated with the organization of a business. However, these should be confirmed and reviewed with an accountant. Additionally, there specific transactions for which a business is the best option. For instance, for specific purpose transactions, like the purchase of a building, an LLC is usually a good vehicle, especially because it protects the risk exposure of its members. Additionally, in States like New York, LLC can be costly because there is a publication requirement which can create higher costs for its owners. 

What is the term of an LLC?

An LLC can be formed subject to a specific term. It can also be created to last in perpetuity or until the members dissolve it. One way or another, this must be properly stated in the Articles of Organization of the LLC. 

Is the interest in an LLC freely transferable?

Whether the members' interest is freely transferable depends on the provision of the Operating Agreement. Once an LLC has been created, the members approve an Operating Agreement which is the document that sets the rule upon which the members will manage the LLC and manage their businesses. If the members want to restrict the transfer of membership interest it should be properly included in the Operating Agreement. 

How is an LLC managed?

The LLC is a business structure that offers more flexibility than others. Accordingly, the owners of the LLC can elect between the formation of an LLC Member-managed or an LLC Manager-managed. In each case, it is important not to lose sight of the fact that whoever manages the LLC is subject to a fiduciary duty, this means it is expected of this manager not to act with bad faith, irresponsible or with lack of a well-informed judgment. 

What are the rules of management for an LLC?

The rules that govern the management of the LLC are called "Operating Agreement". The operating agreement defines the authority of those who will be acting on behalf of the LLC, how are decision made, what are those topics reserved only to the owners of the LLC, whether it is possible to transfer the interest in the LLC, how is the LLC taxed, how will the owners and manager resolve conflicts, and more. 

The Law Office of Giselle Ayala Mateus Can Help You!

The election of the business structure that fits the needs of your business is one of the most important decisions you will make as a new business owner or entrepreneur. For this purpose, the Law Office of Giselle Ayala Mateus can help you, guide you in regard to the ups and downs of each option, give enough you enough elements to make a smart decision. To begin, schedule now, a free consultation!

About the Author

Giselle Ayala Mateus

Giselle Ayala Mateus is a NY attorney with comprehensive experience in transactional law, creative agreements, business formation, and immigration law. She is also the founder of FOCUS a not-for-profit project focused on supporting entrepreneurs and artists.

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