Why Change an LLC to Perpetual

By William Pirraglia

Because of the relative newness of LLCs -- the first legislation appeared in 1977, and most states adopted the structure in the 1990s -- U.S. states can have different rules and regulations. Originally designed to employ the best features of partnerships and the limited owner liability of corporations, LLCs can be limited in their existence by time or death, disability, or bankruptcy of an owner, known as a member. However, this potentially unsatisfactory feature can be eliminated in most states by designating your LLC as a "perpetual" organization.

Because of the relative newness of LLCs -- the first legislation appeared in 1977, and most states adopted the structure in the 1990s -- U.S. states can have different rules and regulations. Originally designed to employ the best features of partnerships and the limited owner liability of corporations, LLCs can be limited in their existence by time or death, disability, or bankruptcy of an owner, known as a member. However, this potentially unsatisfactory feature can be eliminated in most states by designating your LLC as a "perpetual" organization.

Perpetual LLCs Not Addressed in Every State Statute

Initial LLC legislation seldom permitted these organizations to be perpetual. Owners typically had to choose a "life" for their LLCs. The usual life of an LLC was capped at 30 years. As of 2011, most states permit LLCs to last for perpetuity; members must select a term of "perpetual life" in their articles of organization, which is the principal document filed when registering the new company. If your goal is to establish a perpetual LLC, also state this clearly in your operating agreement, which typically supersedes state statutes.

Ready to start your LLC? Start an LLC Online Now

More Like Corporations

Businesses that are organized as a complete alternative to corporations -- which have infinite life -- should normally select the perpetual option. Those organizations that file as LLCs to receive the limited liability protection that is unavailable with partnerships might prefer to specify a time period, particularly if the LLC is formed only for a specific project. If you're planning to have an ongoing business that you hope lasts for perpetuity, like a corporation, choose the perpetual LLC option if available.

Other Reasons

A major drawback with time-limited LLCs is the potential difficulty in replacing members, which is a problem also faced by partnerships. Unless you carefully word your operating agreement to specify how ownership changes will be accomplished, your LLC might self-terminate with the removal, voluntary exit, or death of even one member. Many a successful LLC has suffered severe damage from lack of planning and specific time limits for existence. Most jurisdictions that allow perpetual LLCs have relaxed restrictions that permit you to provide for member replacement and/or functioning with fewer or additional members.

Basic Advantages

If you form an LLC with long-term views of success, you will benefit from creating a perpetual company. You can design your operating agreement much like corporate bylaws that assume infinite existence. You can formulate plans that permit attracting additional investment and owners, stipulate how owners buy and sell their shares in the company, and make long-term organizational plans without regard for a potential dissolution date, meaning liquidation of the company. Should you decide that your LLC should be taxed as a corporation, you have created a perpetual entity that functions like a corporation without the sometimes expensive documentation requirements.

Ready to start your LLC? Start an LLC Online Now
Can an S-Corp Own an LLC?

References

Resources

Related articles

Can I Convert an LLC to an S-Corp?

Converting an LLC to an S corp is possible, but should be done carefully. The advantages of each business structure are offset by potential disadvantages. From a tax treatment perspective, the advantages and ramifications are roughly equal. However, from an company expansion point of view, the differences can be important. In all cases, conversion will come with some expenses that are unavoidable.

How to Understand an LLC

Limited liability companies combine the advantages and disadvantages of corporations and private partnerships. Understanding an LLC involves discovering which aspects of this unique form of business organization resemble traditional models. LLCs can be an ideal business form for particular companies and industries, but their limitations make them a model that is not suited to every situation.

A Professional Corporation vs. an LLC

Starting a new business is a big undertaking that requires making many decisions. Once you have developed a vision for the business, you must decide how to structure it. Each state has laws that govern the basic structure and specific rules for each type of business entity permitted in that state. Two examples of common business forms in all states are professional corporations and limited liability companies. PCs and LLCs are popular choices for small businesses. You must determine which business form will best suit your company's needs.

LLCs, Corporations, Patents, Attorney Help

Related articles

LLC Perpetual vs. Indefinite

Regulations for limited liability companies (LLCs) are determined by the state in which the company is located. Most ...

Legal Definition of LLC Organization

An LLC, or limited liability company, is a business entity that has some properties of a corporation and other features ...

The Legal Definition of LLC

OK, definitions are often boring. However, defining an LLC (limited liability company) is an exception to the rule. ...

Alabama Limited Liability Company Act

The Alabama Limited Liability Company Act governs limited liability companies in Alabama. A limited liability company ...

Browse by category
Ready to Begin? GET STARTED