Notes & updates: None currently.

Limited Liability Companies

Entrepreneurs find both corporate and partnership forms as attractive for various reasons. Incorporating limits personal liability for business debts and obligations. Partnerships provide substantial tax advantages. Limited liability company laws merge advantages of each into one business form, thus simplifying the choice for many businesspeople.

Limited liability companies mimic tax treatment of partnership forms. Unlike corporations, partnership and limited liability company profits and losses flow directly through to the individual owners. Therefore, gains are taxed only once instead of the double taxation imposed on some corporate earnings.

Limited liability companies permit the owners to benefit from lower tax rates and insulate owners from many legal risks. Like corporations, limited liability companies are liable for the businesses debts and obligations. Unless assuming certain roles or acting to the detriment of shareholder and public interests, the business owners will not have personal responsibility for organizational liabilities.

Limited liability companies exist only because of statutory construction. Owners must comply with statutory legal requirements to maintain limited liability classification. Limited liability companies must one or more shareholders, called members, at all times. Limited liability companies must observe corporate formalities. They must maintain their corporate registration and file any documents or reports required by Secretary of State. Limited liability companies must hold shareholder and board meetings, keep corporate records, issue shares, and obey bylaws and articles of incorporation. If owners ignore corporate formalities, they could open themselves to personal liabilities or other adverse legal consequences.

The tax and liability implications of limited liability companies are attractive, but competent legal advice should be sought in order to take full advantage of this business form. Contact Patrick K. Oden, a St. Paul business attorney, for help deciding on formation.

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