Limited Liability Companies

Before 1993, in the state of Michigan, if a party wanted to shield their assets from liability, most people chose the corporation as the ideal form of business. If the company had only a few shareholders and met certain other requirements, it could obtain permission of the IRS to become an S Corporation.

In 1993 another business entity came into being called Limited Liability Companies. Some reluctance to use this new form continued until this new entity was recognized in all 50 states and received formal recognition by the IRS. Now that those two things have occurred, many people are selecting the Limited Liability Corporation (LLC) as the ideal form of business.

Advantages

• A separate legal entity.
• Taxes return is simpler because each member of the LLC can handle their tax filing obligations on a Schedule C attached to their regular 1040.
• It is a hybrid between a partnership and a Corporation in that it combines the "pass-through" treatment of a partnership with the limited liability.
• Members are ordinarily shielded from individual liability.
• Failure to hold meeting of members or managers is usually not grounds for disregarding the entity and holding its members personally liable. Even so, such meetings and minutes of such meetings can be valuable.
• Management is operated by members unless otherwise specified in the articles.
• An excellent form of business for the sole proprietor.

Disadvantages

• A relatively simple structure. If an IPO is contemplated may want to start with a corporation.
• Since it is a relatively new form of business, there has not been a great deal of cases decided establishing legal principles not stated in the statute.