Can an LLC Be a Joint Venture?

By Jeff Franco J.D./M.A./M.B.A.

Jurisdictions within the United States allow for the creation of a limited liability company structure to run the operations of a business. There is no restriction on the number of owners who are eligible to become LLC members before or after legal formation. For this reason, the LLC may be an appropriate entity choice for a joint venture that has multiple investors.

Jurisdictions within the United States allow for the creation of a limited liability company structure to run the operations of a business. There is no restriction on the number of owners who are eligible to become LLC members before or after legal formation. For this reason, the LLC may be an appropriate entity choice for a joint venture that has multiple investors.

Becoming a Member

At the time of formation, any number of members may hold an interest in the LLC. Once legal formation is complete, the authority to admit new members rests with all current members. An LLC often has an operating agreement that all current and future members must adhere to. The agreement may stipulate current or future property and service contribution requirements to acquire a membership interest, the number of votes necessary to admit a member and the limitations on a member’s authority. For example, New York’s LLC law expressly defers to an LLC’s operating agreement to determine how a member may acquire an ownership interest in the business. If the agreement does not stipulate these requirements, or does not exist, most states only require a unanimous member vote to admit a new member.

Ready to start your LLC? Start an LLC Online Now

Member Liability

One of the key advantages of creating an LLC for a joint venture is that each individual member has no personal liability for the debts and obligations of the LLC or for the actions of other members whose activities are beyond the scope of normal business operations. In the event an LLC is unable to pay debts or satisfy contractual obligations, members are not personally responsible if LLC assets are insufficient. However, many states impose personal liability on the individual member who causes damage to others as a result of gross negligence or an illegal act such as fraud. Even where the LLC is liable for those acts, that member is in turn also liable to the LLC for the expense or loss it incurs due to that member's actions.

Tax Advantages

An LLC created as a joint venture receives a default designation as a partnership for federal income tax purposes. Partnership taxation rules impose pass-through principles and limit each member’s tax liability to his proportionate share of LLC earnings. The LLC must file an annual partnership tax return; however, each member receives a Schedule K-1 and reports his share of taxable business income. Members must report all K-1 amounts on a personal tax return and pay the appropriate tax. In the event a member fails to comply with tax reporting or payment requirements, the other members are not responsible for the deficiency. Partnership taxation is also advantageous in that it is not subject to the double taxation a corporation is subject to.

Operating Agreement

Although most jurisdictions do not require it, it's a good idea for a joint venture LLCto have an operating agreement in place that defines each member’s scope of authority in making decisions affecting the business and procedures for settling disagreements efficiently. Having an effective operating agreement allows members to focus on running a profitable business rather than managing each other.

Ready to start your LLC? Start an LLC Online Now
What Are the Legal Responsibilities of Limited Liability Companies?

References

Related articles

Taxation of an LLC

The Internal Revenue Code (IRC) does not impose a separate body of tax law that is applicable to limited liability companies as it does with other business structures such as corporations and partnerships. Federal regulations provide LLC members some flexibility in choosing the type of income taxation to which business profits are subject.

LLC Rules & Guidelines

Entrepreneurs who wish to create a limited liability company for their business must adhere to the prevailing laws of each state. Limited liability company formation requirements across various jurisdictions have many similarities. Almost all require the filing of a Certificate of Organization with the jurisdiction’s Secretary of State as a prerequisite to legal formation.

LLC Profits and Disbursement Rules

Owners who invest in a limited liability company and become members obtain returns on their investments through appreciation in the value of the business and through the earnings and profits of the LLC. The members may receive periodic distributions of LLC profits throughout the year. However, if members agree, the LLC may retain all earnings and refrain from issuing a distribution.

LLCs, Corporations, Patents, Attorney Help

Related articles

What Are the Benefits of Setting Up an LLC?

All 50 states and the District of Columbia authorize the creation of all business entities within their jurisdictions. ...

Limited Liability Company Information

There are separate bodies of law governing the formation, operation and dissolution of limited liability companies in ...

LLC & Profit Distribution

The members of a profitable limited liability company are entitled to receive periodic distributions from the ...

Laws on How to Use LLCs

Each of the 50 states and the District of Columbia establishes its own rules and regulations that govern the creation ...

Browse by category