Can I Have a Partner With an LLC?

By Elizabeth Rayne

A Limited Liability Company is a common business entity that may be owned and managed by one or more individuals. LLCs, formed and managed under state law, are relatively simple to set up, and allow for a flexible management structure. Unlike a partnership, LLC owners, known as members, are not personally liable for the debts and obligations of the company.

A Limited Liability Company is a common business entity that may be owned and managed by one or more individuals. LLCs, formed and managed under state law, are relatively simple to set up, and allow for a flexible management structure. Unlike a partnership, LLC owners, known as members, are not personally liable for the debts and obligations of the company.

LLCs vs. Partnerships

LLCs are structured to operate as a partnership, but enjoy the limited liability benefits of a corporation. Like a partnership, the owners of an LLC have flexibility in how they want to manage the business, and how they want to distribute the profits. Unlike a partnership, LLC owners are not personally liable for the debts or the obligations of the business, except in rare circumstances. Because of this, most states require LLCs to formally register with the state, while partnerships often do not require registration.

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LLC Formation

An LLC can be formed by one or more individuals or entities. When more than one individual forms an LLC, the owners are essentially business partners. However, in most states, LLC owners are referred to as members, according to law. When forming an LLC with multiple members, many LLCs draft an operating agreement which specifies how the company will be managed, how profits will be distributed among the members, and how the LLC may be dissolved. Although not a legal requirement in most states, many LLCs create an operating agreement designed to prevent conflict among members down the line.

Management Structure

When an LLC has more than one member, the members may decide how they want to share the management of the company. An LLC may be either "member-managed" or "manager-managed." In a member-managed LLC, all the owners have equal rights and responsibilities in managing the company. Conversely, a manager-managed LLC provides that one or more members are designated as "managers" who will be responsible for making decisions for the company. When not otherwise specified in the operating agreement, the LLC will automatically be a member-managed company in most states.

LLC Taxation

The Internal Revenue Service does not recognize LLCs as a business entity. Instead, an LLC with more than one member must file its tax return as either a corporation or a partnership. Members are often referred to as partners because of the way the LLC is taxed, although the tax treatment does not affect the business entity type. When an LLC is treated like a partnership, the business income "passes through" the company, meaning the LLC is not subject to business income tax and double taxation. Instead, the income is reported on the personal tax returns of the members.

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General Partnership Vs. LLC

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What Is Important in an LLC?

A limited liability company is a relatively new type of business organization. Introduced more than 30 years ago, the LLC was meant to combine the best attributes of partnerships and corporations. It is important to know that while LLCs share common characteristics, these organizations are regulated by state law. This means that some elements of an LLC may vary from state to state, such as the process for becoming an LLC.

What Does a Limited Liability Company Mean?

A limited liability company, or LLC, is a hybrid business form created by state statute. The LLC combines the corporate feature of limited liability with the flexibility and tax status of a traditional partnership. It is the preferred business form for small business owners who do not intend their business to grow significantly, according to "Entrepreneur" magazine. “Limited liability” means that the LLC’s members do not have personal liability for business decisions or activity conducted on behalf of the LLC.

Can a Member of an LLC Be Fired?

Managing relationships between owners of a small business can be quite trying at times. In cases of severe disagreement or incompatibility within a limited liability company, firing one or more owners, referred to as members, may be an option. However, generally an LLC may only fire a member when the operating agreement allows it, and if the owner is compensated for his share of the business.

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