The LLC handbook

 Introduction to LLCs

The law of business organizations has drastically changed over the past three decades due to the creation and increasing popularity of the limited liability company (LLC). From its humble beginning as a piece of special interest legislation in Wyoming, the LLC has grown into such a popular vehicle that today there are many more LLCs being formed each year than corporations.

The limited liability company is a “hybrid” entity, created to provide the liability benefits of a corporation, with the tax benefits of a partnership. The first modern limited liability company was actually created in Germany in 1892. The concept spread throughout Europe and South America, but it was not until 1977 that the first LLC Act was passed in the United States.

The concept did not spread to other states (other than Florida), because it was not known if the Internal Revenue Service would tax an LLC as a partnership. However, in 1988, the IRS ruled that it would classify a limited liability company as a partnership if the LLC had fewer corporate characteristics than partnership characteristics. Following that ruling the remaining states began to adopt LLC Acts.

Although LLCs became available nationwide, many business people were reluctant to use them because of lingering uncertainty over whether a company with the characteristics they desired would be taxed as a partnership.

However, that uncertainty was eliminated in 1997 when the Treasury Department’s “check-the-box” regulations went into effect.

Today, use of the LLC is so widespread that any legal professional dealing with a start-up or continuing business ventures must be familiar with this type of organization.