Articles

Creating an LLC? Maybe Not as Easy as it Looks

 By:  Beth S. Cohn

If you are considering forming a new company, many people decide that a limited liability company (LLC) will be the best type of company structure for them.  However, selecting to form a LLC may be the easy part!  There are many considerations when setting up your LLC.  We've listed just a few below.  

  • Should your LLC be member managed or manager managed? 
  • If there is more than one member,
    • Which member is running the business?
    • Which member is best suited to be the manager?
    • Are there certain decisions that need the approval of the other members?
    • What are the consequences if one of the members is putting in money or capital and another is providing sweat equity?
    • Are buy-sell provisions needed on the death, disability or divorce of one of the members?
    • If one of the members is actively involved in the business of the LLC and the other is not, is there a mechanism for removing the member who is running the business if that member isn't performing?
    • If a member leaves, are restrictive covenants necessary to protect the business interests of the LLC? 
  • How should the LLC be taxed?
    • Is the LLC a disregarded entity and taxed on a Schedule C of the member?
    • Should the LLC be taxed as a corporation?  If yes, should a Subchapter S election be taken?
    • Should the LLC be taxed as a partnership? 
  • What are the reasons for forming a LLC versus a corporation? 
  • Are there any measures that can be taken by a member to help protect both the assets and the business of the LLC from creditors of a member?

These are some of the questions that we ask our clients to consider when helping them form a LLC.  The issues are unique and depend on both the type of business as well as the venture.  Having a qualified lawyer help you answer these and other questions, will ensure that you have a LLC that fits your business and your needs.

About the author:  Beth S. Cohn is a shareholder at the Phoenix law of Jaburg Wilk.  She chairs the business law department and is a State Bar of Arizona certified tax specialist and a CPA. 

 

 

 

 

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