What You Need to Know About LLCs
New business ventures can be structured in many different forms, including as a sole proprietorship, partnership, or corporations. With that being said, limited liability companies (“LLCs”) have become one of the most common forms in Kansas. An LLC can limit the liability of the owners, so they are not liable for the debts of the entity. Members of an LLC are generally only at risk to the extent of their investment in the LLC, and their other personal assets are protected.
One of the biggest advantages of LLCs is that they can be a bit more simple and flexible than corporations. Some formalities, such as annual minutes, are not required of all LLCs unlike other entities in Kansas. The members of the LLC often actively participate in the management of the business. The use of an LLC is a good choice for many business types with a limited number of owners.
Although LLCs can be used in myriad different contexts, a common usage is for rental real estate. In this case, once the LLC is properly established, the rental real estate can be transferred into the LLC. If an accident subsequently occurred on the real estate premises, the liability may be limited to the assets of the LLC and not reach the other assets of the owner.
To form an LLC, Articles of Organization must be prepared and filed with the Kansas Secretary of State. Next, internal documents controlling the LLC are prepared including an operating agreement, organizational minutes, and a membership certificate. LLCs in most cases also receive a taxpayer identification number that is used for tax purposes.
LLCs are most commonly taxed as partnerships for federal tax purposes. Accordingly, LLCs are not subject to two layers of tax. Instead, income or loss from the LLC flows from the LLC to the members and is reported on the member’s individual tax returns. LLCs with only a single member are a bit different, however, and are treated as sole proprietorships, which means that the single-member LLC’s income is reported directly on the member’s tax return.
An often overlooked benefit of LLCs is that they can provide for ongoing and centralized management of assets. For example, some families create LLCs to allow for inherited or family assets to remain jointly owned with a management structure in place.
Please contact the lawyers at Clark, Mize & Linville, Chartered to discuss the formation of a limited liability company to protect your assets.
Written by: Joshua C. Howard
Related Practice Area: Business Formation and Governance
