
Definitions
- LLC: Limited Liability Company (not corporations).
- Organized: Structure. They are not incorporated.
- Owners are called members
- Managers are similar to directors and are in charge of overseeing the management of the company. There is a distinction between member-managed LLCs and manager-managed LLCs.
- A certificate of organization is filed to create an LLC.
- An operating agreement is a document creating a contract between the LLC and the members.
Purpose
People create LLCs primarily because it provides limited liability. That is, members generally have limited liability for debts and obligations for the LLC. Another reason for creating LLCs is because there is a familiar statutory framework provided. People also feel like having an LLC sounds like a more serious business endeavor. LLCs are also more flexible—for governance, sharing profits and losses, and tax treatment—than other entity types.
Limited Liability
See Ch. 489.304.
Members and managers are not liable for the debts and obligations for actions of the LLC (acting on behalf of the LLC). However, if the member or manager (1) engages in tortious conduct, (2) agrees to be personally liable (sometimes loans do this), (3) improper distributions are made to members during timesi of insolvency, or (4) a court determines personal liability should apply (piercing), they may be liable.
Piercing
Courts may “pierce the veil” if the LLC has inadequate capitalization, no accounting records, commingling of personal and company funds, or members engaging in fraud.
However, according to 489.304, if an LLC fails to engage in formalities (such as keeping minutes)—although not advisable—is not sufficient alone to impose liability.
How to Form
Things you need:
- A certificate of organization listing the name of the LLC, the name and address of the registered office and agent. This needs to be signed by the organizer and filed with the state. In Iowa, filing with the fast track filing system will ask the applicant to determine the term of othe LLC, whether the LLC owns Iowa agriculture land, and the address of the principal place of business.
- A name with “LLC,” “Limited Liability Company,” or “Ltd. Co.,” “Limited Company,” “L.L.C.,” etc. attached at the end. If the company wishes to conduct business without the designation, then it needs to file a fictitious name.
- The registered agent and office. This has to be a physical address, not a P.O. box. The purpose of this is so any lawsuits against the company may be served upon the agent.
Taxes
Single member LLCs are generally disregarded for income tax purposes. That is, the single member will file their LLC’s income on the member’s individual return.
Multi member LLCs generally are taxed as partnerships.
LLCs can elect to be treated as a corporation for tax purposes.
Operating Agreement
489.105(1).
The operating agreement governs the function of the company. If the operating agreement excludes any provisions, the act fills in those gaps (called default rules). However, there are 15 items the operating agreement cannot alter from the statute. See 489.105(3).
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.