Guide to Starting and Operating a Small Business | 2018 Guide to Starting and Operating a Small Business - Page 24

Limited Liability Company A limited liability company (LLC) business entity was created to combine the advantages offered by both partnerships and corporations. An LLC provides the members (owners) of the business limited liability protection like shareholders in a corporation combined with the simpler operation and pass-through tax characteristics of a partnership. An LLC is created by filing Articles of Organization with Michigan Department of Licensing and Regulatory Affairs (LARA) along with the appropriate filing fee. Like a corporation, an LLC will be responsible for paying an annual fee with LARA to continue its existence. In addition to the Articles of Organization, members of an LLC are encouraged to establish an Operating Agreement. Particularly in a multi-member LLC, this is the basis on which you establish consistency and understanding about how the company will be managed and decisions made, duties of members, what contributions are required from members, how profits and losses will be calculated, limitations of liability and protection of members, and how members might be added, terminated or exit. The State of Michigan does not require an Operating Agreement to be filed in order to form an LLC, but rather this is a private document which governs the relationship of the members and may be amended by the members from time to time. By default, a single-member LLC is taxed as a sole proprietorship and a multi-member LLC is taxed as a partnership. But the member(s) may elect to have the LLC taxed as an S-Corporation or a C-Corporation. Tax election is separate from entity choice, and so members should consult a tax attorney or CPA with any questions and to maximize tax planning opportunities. Advantages • Limited liability for business debts and claims • Flexible tax options • Easier to establish and maintain than a corporation Disadvantages • More complex start-up requirements than partnerships or sole proprietorships L3C A low-profit limited liability company (L3C) is a relatively new business entity and can be formed as a new entity or by converting an existing one. Michigan is one of just a few states that have amended their general limited liability company law to create this hybrid of a nonprofit and for-profit organization. An L3C is a for-profit company with a charitable mission first and a profit concern second. L3C encourages investments in socially beneficial for-profit businesses by simplifying compliance with the IRS rules for program-related investment, which is a type of investment that private foundations are allowed to make. An L3C must significantly further the accomplishment of one or more charitable purpose; the production of income and appreciation of property cannot be a significant purpose of the L3C; and an L3C cannot seek to accomplish any political or legislative purposes. As with an LLC, although Michigan does not require an operating agreement to be filed in order to form an L3C, executing one is highly advisable. It is the basis on which you establish consistency and understanding about how meetings are conducted, how the company will be managed and decisions made, duties of members, what contributions are required from members, how profits and losses will be calc ձѕхѥ́䁅)ɽѕѥ̰܁́Ёѕɵѕȁи)0 ́ɕѕ䁙ѥ́=ɝѥݥѠѡ5ѵЁ1ͥIձѽ)̀1IݥѠѡɽɥєQݽɑ̀ܵɽЁѕ䁍䈁ȁѡ)ɕ٥ѥ0̹ Ȁ̹ЁՑѡѡ܁ѥ䀡ѥ$ѡɴѡ)͔͔ѥ%$ѡɴɽ͕ȁݡѕи9=Q5܁ͼɕեɕ́ѡЁѡѥ)0 ͔ͥ́ՑՅͼЁ́ɕձЁݥѠѽɹ䁥)ͥɥѡ́ѥ丁ͼ%ԁ͔ѼٕЁѥѥѼ0 Ё͕́ѥѼ)ͥȁЁѠхѥ́ձхѥݥѠѽɹ丁1Ʌѥȁ11 0 )ݥɕͥȁ她ՅݥѠ1IѼѥՔ́ѕ(