The LLC, or limited liability company, is one of the most popular ways to legally organize a business. One of the LLC's hallmarks is its simplicity, both in terms of its initial formation and its ongoing administration and management, and business owners often choose the LLC business structure over a corporate structure because of this ease in meeting initial and ongoing compliance requirements.
Characteristics of an LLC
The following are characteristics of the LLC, which make it a particularly attractive option for the small business owner:
- Limited liability. As its name suggests, the LLC provides its owners/members with limited liability, without the more complex legal requirements that are generally imposed on corporations. Limited liability means that members of an LLC are not personally liable for the liabilities or other debts of the LLC.
- Taxation. LLCs have a lot more flexibility when it comes to how they're taxed federally. By default, single-member LLCs are treated as sole proprietorships by the IRS, while multi-member LLCs are taxed as partnerships. However, LLCs also have the option of electing to be taxed as an S Corporation or a C Corporation.
- Distributions. Unlike the corporate structure, LLCs have flexibility in terms of how profits are distributed. While distributions are often made based on the percentage of ownership interests, members of an LLC have the option of choosing a different method of distribution.
- Paperwork. Corporations have a multitude of record-keeping requirements, but most states do not impose many filing requirements on LLCs. This can add to a substantial annual costs savings, as often the paperwork that needs to be filed to maintain corporate status can take a lot of time, for corporations going the DIY route, or money, for those employing the services of professional advisers.
Basics of the LLC Resolution
A corporate resolution is generally required to document actions taken by the corporation, but when it comes to LLCs, resolutions are not mandated. Because of this, there is no specific or required way to draft an LLC resolution.
While not all states require an operating agreement, it's often beneficial for an LLC to have one. This is particularly so in the case of a multi-member LLC, since an operating agreement, much like the articles of incorporation for a corporation, provides guidelines that govern the operation and management of the LLC.
Most operating agreements include provisions dealing with resolutions, and in particular, the percentage of votes required to pass a resolution. In the majority of cases, a majority vote will be required, but different voting percentages can be drafted into the operating agreement, either at the time the agreement is created, or later, as an amendment to the document.
When to Use an LLC Resolution
Despite the fact that LLCs are not required to validate a major decision with a resolution, there are times when it's a good idea to use a resolution. For example, the following are common reasons to use an LLC resolution:
- Opening a bank account in the LLC's name. Banks and other financial institutions typically require a resolution that states that an individual member is authorized to open up an account in the LLC's name.
- Obtaining a bank loan. As with opening up a bank account, when an LLC obtains a loan, a bank will usually require a resolution that states that the individual or member signing for the loan is authorized to sign on the LLC's behalf.
- Documentation of major decisions. When dealing with major decisions such as purchasing real estate or entering into a long-term lease, it's usually advisable to document the transaction with an LLC resolution.
While LLCs do not need to file resolutions to document their decisions and transactions, there are many situations where a resolution might be necessary. This is particularly so when the transaction involves an external party, such as a bank or other financial institution.
This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.