| Companies law |
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| Company · Business |
| Business entities |
| Sole proprietorship
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| United States |
| S corporation · C corporation LLC · LLLP · Series LLC Delaware corporation Nevada corporation Massachusetts business trust Delaware statutory trust Benefit corporation |
| UK / Ireland / Commonwealth |
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| European Union / EEA |
| SE · SCE · SPE · EEIG |
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| Doctrines |
| Corporate governance Limited liability · Ultra vires Business judgment rule Internal affairs doctrine Piercing the corporate veil Rochdale Principles |
| Related areas |
| Contract · Civil procedure |
A limited liability company (LLC) is a flexible form of enterprise that blends elements of partnership and corporate structures. It is a legal form of company that provides limited liability to its owners in the vast majority of United States jurisdictions. LLCs do not need to be organized for profit.
Often incorrectly called a "limited liability corporation" (instead of company), it is a hybrid business entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are). An LLC, although a business entity, is a type of unincorporated association and is not a corporation. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. It is often more flexible than a corporation, and it is well-suited for companies with a single owner.
It is important to understand that limited liability does not imply that owners are always fully protected from personal liabilities. Courts can and sometimes will pierce the corporate veil of corporations (or LLCs) when some type of fraud or misrepresentation is involved.[1] Limited liability company members may, in certain circumstances, also incur a personal liability in cases where distributions to members render the LLC insolvent.[2]
The phrase "unless otherwise provided for in the operating agreement" (or its equivalent) is found throughout all existing LLC statutes and is responsible for the flexibility the members of the LLC have in deciding how their LLC will be governed (provided it does not go outside legal bounds). State statutes typically provide automatic or "default" rules for how an LLC will be governed unless the operating agreement provides otherwise.
Similarly, the phrase "unless otherwise provided for in the bylaws" is also found in all corporation law statutes but often refers only to a narrower range of matters.
For U.S. Federal income tax purposes, LLCs are treated by default as a pass-through entity.[3] If there is only one member in the company, the LLC is treated as a "disregarded entity" for tax purposes, and an individual owner would report the LLC's income or loss on Schedule C of his or her individual tax return. The default tax status for LLCs with multiple members is as a partnership, which are required to report income and loss on IRS Form 1065. Under partnership tax treatment, each member of the LLC, as is the case for all partners of a partnership, annually receives a Form K-1 reporting the member's distributive share of the LLC's income or loss that is then reported on the member's individual income tax return.
An LLC with either single or multiple members may elect to be taxed as a corporation through the filing of IRS Form 8832.[4] After electing corporate tax status, an LLC may further elect to be treated as a regular C corporation (taxation of the entity's income prior to any dividends or distributions to the members and then taxation of the dividends or distributions once received as income by the members) or as an S corporation (entity level income and loss passes through to the members). Some commentators have recommended an LLC taxed as an S-corporation as the best possible small business structure. It combines the simplicity and flexibility of an LLC with the tax benefits of an S-corporation (self-employment tax savings).[5]
Companies with limited liability exist in business law worldwide. However, the limited liability company is a specific legal structure defined by the laws of U.S. states, with quite distinct characteristics. Many other countries have similar structures.
"Sociedad de Responsabilidad Limitada" (S.R.L.) (Ley de sociedades comerciales 19.550) The capital is divided into "quotas" (unlike the "Sociedades Anonimas (S.A.)" which capital is divided in "shares"); members limit their responsibility to the nominal value of the quotas subscribed or later acquired. The number of members shall not exceed fifty. The administration and representation of the company corresponds to one or more managers, members of the company or not, designated for a specified or unspecified period of time. Alternates may be selected in case of vacancy.
In Belgium, there are several forms of corporation which provide limited liability. The Besloten Vennootschap met Beperkte Aansprakelijkheid (BVBA) in Dutch, or Société privée à responsabilité limitée (SPRL) in French, is the smallest, with minimum required startup capital of EUR 18,550, and is mostly used by smaller business owners to protect themselves in case of bankruptcy. Profits are not taxed personally at the member level but always at the BVBA level.
Bosnian and Herzegovinian legislation, similarly to that in Croatia, contemplates LLCs as društvo s ograničenom odgovornošću (d.o.o.). Companies using this structure append the abbreviation d.o.o. to their company name. A shareholder or member in a d.o.o. is only personally liable up to the value of the member's investment in the company.[9]
The corporate structure in Brazilian law most similar to the United States LLC is the Sociedade Limitada ("Ltda."), under the new Brazilian Civil Code of 2002. The "sociedade limitada" is the new name of the "sociedade por quotas de responsabilidade limitada", and it can be organized as "empresária" or "simples", under this new code, roughly corresponding to the form types of "comercial" [commercial] and "civil" [non commercial] of the Commercial Code.
Bulgarian legislation contemplates LLCs as Дружество с ограничена отговорност (Druzhestvo s ogranichena otgovornost; Partnership with limited liability). Companies working under this structure append the abbreviation ООД (OOD) to their name. In case of an LLC with individual owner it is contemplated as Еднолично дружество с ограничена отговорност (Ednolichno druzhestvo s ogranichena otgovornost; One-man/ Single-member partnership with limited liability) and abbreviated as ЕООД (EOOD).[10]
Chilean legislation contemplates LLCs as Sociedad Comercial de Responsabilidad Limitada (Limited Liability Commercial Association). Companies working under this structure append the abbreviation Ltda. to their name. Therefore, a company which in the United States is called SomeCompany LLC would be called SomeCompany Ltda. in Chile. However, in the case of an LLC with one individual owner, the equivalent in Chile would be an Empresa Individual de Responsabilidad Limitada which uses the EIRL abbreviation.
Colombian legislation contemplates a very similar structure as mentioned above in the Chilean case. The Ltda. abbreviation is also used in Colombia.
Croatian legislation contemplates LLCs as društvo s ograničenom odgovornošću. Companies working under this structure append the abbreviation d.o.o. to their name.
Czech legislation contemplates LLCs as společnost s ručením omezeným (s.r.o. or spol. s r.o.). An s.r.o. is not technically comparable to an LLC because the profits are still subject to double taxation. Czech law does not offer a possibility to start up a limited company without the possibility of avoiding double taxation. The minimum start-up capital for an s.r.o. is CZK 200,000 (approximately USD 11,000).
The Danish form of the LLC is the anpartsselskab (see ApS). The minimum capital is required by law to be at least DKK 80,000 (approximately US$ 16,000) [Before 1 March 2010 DKK 125,000].[11]
Dominican Republic legislation contemplates LLCs as Sociedad de Responsabilidad Limitada, also known for their abbreviation "S.R.L.". S.R.L.'s award limited liability to its members up to their contribution in the company (i.e. contribution of capital). This type of company began after the law number 479 of the year 2008.
In Estonia, a limited liability company is referred to as osaühing (OÜ). The type of entity is also required to be identified in the name.
Although not an exact equivalent, the Finnish version of the LLC is the Oy (osakeyhtiö) or in Swedish Ab (aktiebolag). An Oy is taxed as a corporation. The minimum capital required by law is EUR 2,500.[12]
S.A.R.L. or Société à Responsabilité Limitée is close to German GmbH. It was in law since 1925. See also the full article : Société à responsabilité limitée
Because of its hybrid characteristics it is very difficult to determine the German equivalent. On one hand it is possible to consider it as a kind of Gesellschaft mit beschränkter Haftung (GmbH) because it has aspects of a corporation; on the other hand it could be considered as a kind of Kommanditgesellschaft (KG), which is the German equivalent of a limited partnership. Based on the literal translation of the word "company" an LLC should be considered as a kind of KG without any liable partner. For the purpose of taxation the Bundesfinanzministerium (German Federal Ministry of Finance) gives detailed guidelines of the circumstances under which a LLC is to be considered as a "corporation" or as a "limited partnership"; see: Steuerliche Einordnung der nach dem Recht der Bundesstaaten der USA gegründeten Limited Liability Company.
Hungarian legislation contemplates LLCs as Korlátolt felelősségű társaság. Companies working under this structure append the abbreviation Kft. to their name. Hungarian LLCs were previously required to have a 3million HUF (Hungarian Forint) (approx. 16k USD) starting capital. This amount has been recently reduced and currently (in 2009) the minimum starting capital is 500k HUF (approx. 2.7k USD). The time of formation by the new electronic formation option has been reduced from 2 weeks to 2 hours, additional cost of formation is around 100k HUF (approx. 540 USD). Kft.s can be formed by the cooperation of lawyers. The Hungarian Kft. is the most common form of doing business in Hungary. As being part of the European Union (EU), Hungarian Kft.s can now obtain an EU VAT registration number for doing business across the EU. The Hungarian EU-VAT reg.number starts with "HU". This way the existence of the subject company, VAT issues and the cross-check is available on the common EU website for companies.
According to the Icelandic legislation there are two types of LLC forms, private and public held limited liability forms. Private LLC is abbreviated "Ehf." with the minimum capital of 500.000 Icelandic krónas (kr.). Public LLC is abbreviated "Hf." with minimum capital of 2.000.000 kr.
In India LLCs are known as Limited Liability Partnership (LLP). There is no minimum capital.
In India Companies are governed and registered under the Companies Act, 1956. New enactment Limited Liability Partnership Act, 2008 is passed for taking care of smaller firms. Under the CA1956, every state has one office of Registrar of Companies under this act. The group of people as prescribed by the act sign together the document Memorandum & Articles of Association and submit to the registrar along with the fees. The Registrar after checking the documents, registers the Company and allocates the Corporate ID number. Since 2007, the registration is done online and payment of fees is accepted online. Institute of Company Secretaries of India, a statutory body appointed under this act, registers charter member for rendering the services under this act, to the corporate. Then Company can apply for PAN card (registration under Income Tax Act, 1961), bank account, apply for issue of shares (for public Companies), of apply for loan to the banks and FIs.
The Company must include Limited (for public Companies) or Private Limited (for Private Companies). The Companies registered under section 25 of this act are non-profit Companies..
The Italian Civil Code, approved in 1942 and as amended by the Government Act 6/2003 and furthers modifications, mainly provides three forms of limited liability company:
Companies append the corresponding abbreviation to their company names.
Japan passed legislation in 2006 creating a new type of business organization, godo kaisha(J-LLC), a close variant of the American LLC. Japanese Tax authority does not consider J-LLC (Godo-Kaisha) pass-through entity, but as taxable entity.
In Latvia, a limited liability company is referred to as Sabiedrība ar Ierobežotu Atbildību. Abbreviation SIA is usually added before the company name. SIAs are recorded in a public register called Register of Enterprises (UR).
Macedonian legislation contemplates LLCs as Drushtvo so Ogranicena Odgovornost. Companies working under this structure append the abbreviation d.o.o. or "д.о.о" to their name.
Mexican legislation contemplates LLCs as Sociedades de Responsabilidad Limitada, also known for their abbreviation "S. de R.L.". S. de R.L.'s award limited liability to its members up to their contribution in the company (i.e. contribution of capital) and also act as pass-through or flow-through entities whereby profits are "passed-through" to its members, avoiding double taxation. This type of company is widely used by foreign investors in Mexico because of its "pass-through" modality and its "check the box" capability under the IRC (Internal Revenue Code of the U.S.).
Moldovan legislation contemplates LLCs as Societate cu Răspundere Limitată, abbreviated "S.R.L.", and are regulated member(s)-founder(s), and other non-founder members, minimum one member-founder and maximum total of 50 members, at least one of them must be the founder of the company, but all of the 50 could be also founders.
In the Netherlands the equivalent to an LLC is a Besloten Vennootschap. Its name always starts or ends with the letters BV. Minimum capital of a BV is €18,000, normally deposited in a Dutch bank. BV's are taxed on profits, but not on royalty income, nor on capital. Audits are only required if two out of three conditions exist: 1. revenue greater than €8.8M, 2. assets are greater than €4.4M, 3. more than 50 employees in the Netherlands.[13]
In Norway the equivalent to an LLC is a Aksjeselskap. Its name always starts or ends with the letters AS or ASA. Minimum capital of a AS is 100 000 NOK.
In Pakistan LLCs are known as private companies that end with Pvt. Ltd.. They should have at least Rs. 100,000 as their minimum paid up capital.
There is no direct equivalent of an LLC in Peru, but some similar corporate forms include:
The capital for any of the above entities is freely determined by its statutes. There is no minimum requirement except for entities with certain types of activities, mainly in the financial markets, and then irrespective of their type.[14]
In Poland, a limited liability company is referred to literally as company with limited liability (Spółka z ograniczoną odpowiedzialnością, abbreviated as Sp. z o.o.).
The minimum start capital is 5,000 PLN (since 2009; until then, 50,000 PLN).
In Portugal, LLCs are called "Sociedades de Responsabilidade Limitada", that is, Company of limited responsibility, usually abbreviated "Lda.". They are tax subject, and company shares cannot be sold in a public market, since 2006 the transference of them are not required to be done in the presence of a civil law notary, except if the company owns buildings, in the same way other major properties have to be sold. Nonetheless, the responsibility of the partners is limited to the capital share they hold, and the minimum capital required by law for a "Lda.. is at least 5 euro.
Romania recognizes the limited liability company since 1990 under the name of "societate cu răspundere limitată" (S.R.L.) in which the owners are personally liable for the company obligations within the limit of their contribution to social capital. The minimum start capital is 200 RON which currently amounts to less than 50 Euro[15]
In Russia and certain other former Soviet countries, an entity with a somewhat similar structure is known as Общество с ограниченной ответственностью (lit., 'Company with Limited Liability'), usually abbreviated OOO, or in some CIS countries as OсOO.
Although a Russian limited liability company shares the same name with a USA LLC, it is different in many ways. Most importantly, Russian LLC is not tax transparent: the company is taxed at the corporate level, and then, upon distribution of dividends, shareholders pay income tax (personal or corporate).
A limited liability company is the most popular form of legal undertaking in Russia for simple shareholding structures.[16]
Serbian legislation contemplates LLCs as društvo sa ograničenom odgovornošću. Companies working under this structure append the abbreviation d.o.o. or DOO to their name same as in Croatia. As in the Czech Republic, a d.o.o. is not technically comparable to an LLC because the profits are still subject to double taxation.
In Slovakia, the law contemplates spoločnosť s ručením obmedzeným (abbr. spol. s r. o.) or as the rough equivalent of a limited liability company. One to 50 associates can found it through a founding agreement with minimum capital of 5000€, minimum 750€ per person, in money or other property. (§ 105 and following of Act. No 513/1991 Coll. - Commercial Code as amended)
Slovenian legislation contemplates LLCs as družba z omejeno odgovornostjo. Companies working under this structure append the abbreviation d.o.o. to their name. The minimum required starting capital for a d.o.o. is 7.500 EUR. Due to high cost and complicated bookkeeping of a real Corporation, this is a more widespread form.
In Spain, LLCs are called "Sociedad de responsabilidad limitada", that is, Company of limited responsibility, usually abbreviated S.L. They are tax subject, and company shares cannot be sold in a public market, the transference of them having to be done compulsorily in the presence of a civil law notary, in the same way other major properties have to be sold. Nonetheless, the responsibility of the partners is limited to the capital share they hold, and the minimum capital required by law for a S.L. is at least 3000 euro.
Sweden has no equivalent of an LLC. The closest is the Swedish AB (aktiebolag), though a Swedish AB is a tax subject and is more similar to a US C Corporation than an LLC. The minimum capital required by law for a minimum at SEK 50,000.[17] for a private AB and SEK 500,000 for a public AB.[18]
The Swiss Code of Obligations[19] provides for different kinds of companies with limited liability, the two most commonly used are:
Swiss Limited Liability Company:[20][21] The terms for this kind of company used in the three official languages of the Swiss Confederation are as follows: In German Gesellschaft mit beschränkter Haftung (abbreviation: GmbH), in French Société à responsabilité limitée (abbreviation: S.à r.l. or SARL) and in Italian Società a Garanzia Limitata (abbreviation: SaGL). A Swiss LLC is similar to a LLC with respect to various matters, including the following: Members may also be natural persons, corporations, partnerships or other LLCs,[22] the liability of a member of a Swiss LLC to pay for the LLC's obligations is limited to its capital contribution,[23] a Swiss LLC may be either member-managed or manager-managed,[24] and, unless otherwise provided for in the operating agreement, the members’ right to control or manage a Swiss LLC is proportionate to their individual membership interest.[25] The membership interests in a Swiss LLC have to be registered[26] and, thus, they may only be issued in the name of a member but not to the bearer.
Swiss Corporation[21][27] (in English common law context usually translated as company limited by shares): The terms for this kind of company used in the three official languages of the Swiss Confederation are as follows: In German Aktiengesellschaft (abbreviation: AG), in French Société Anonyme (abbreviation: SA) and in Italian Società Anonima (abbreviation: SA). A Swiss corporation is with respect to various matters different to a LLC (including a Swiss LLC): Most important is that a Swiss corporation may, neither by default nor by exercising any respective option provided by the Swiss law, be member-managed like a LLC, as the respective mandatory provisions of Swiss law provide that the board of directors has certain non-transferable duties.[28] Furthermore, the shares of a Swiss corporation may also be issued to the bearer (bearer shares)[29] and, thus, not only in the name of a holder (registered shares), which, however, applies to the membership interests in a Swiss LLC, which may only be registered.
In Turkey, "Limited Şirket (Ltd. Şti.)" corresponds to Limited Liability Company.
The new form of limited liability partnership (LLP), created in 2000, is similar to a US LLC in being tax neutral: member partners are taxed at the partner level, but the LLP itself pays no tax. It is treated as a body corporate for all other purposes including VAT. Otherwise, all companies, including limited companies and US LLCs, are treated as bodies corporate subject to United Kingdom corporation tax if the profits of the entity belong to the entity and not to its members.
This type of entity exists in this country since the 1990s. In Ukrainian it is spelled "Товариство з обмеженою відповідальністю" (abbreviated – TОВ, TзОВ), in transliteration "Tovarystvo z Obmezhenoyu Vidpovidalnistyu," that is, "Company of limited liability."
This type of entity exists in the U.A.E. states as a widely accepted way to do business and is referred as L.L.C..
A Limited Liability Company (LLC) is a relatively new business structure authorized by state statute.[30] The LLC is chiefly inspired by the GmbH, a type of business organization in Germany, and by limitadas, a type of business organization available in many Latin American countries.[31]
In the United States, the first limited liability company act appeared in Wyoming in 1977 as special interest legislation for an oil company.[32] In 1980, the Internal Revenue Service issued a private letter ruling to an LLC formed under Wyoming LLC Act indicating that the IRS would treat the LLC as a partnership for federal tax purposes.[33] However, later that year, the IRS proposed regulations that would deny partnership classification to any business entity in which no member bore personal responsibility for the entity’s liabilities.[34] In 1982, Florida adopted an LLC act modeled on Wyoming’s LLC Act.[35] Due to uncertainty over the tax treatment of LLCs, no other states introduced LLC legislation until after 1988.[36] In 1988, the IRS issued a revenue ruling stating that it would treat a Wyoming-style LLC as a partnership for tax purposes.[37] By 1996, nearly every state had enacted an LLC statute.[38] The National Conference of Commissioners on Uniform State Laws adopted the Uniform Limited Liability Company Act in 1996 and revised it in 2006.[39]
AOL was setup as a LLC during its ownership by Time Warner from 2001 to 2008. There is a similar setup for BMW's American subsidiary, BMW of North America, LLC.
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