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.

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.

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.

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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.

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