LLCs can also provide favorable tax treatment. As with a partnership, members have “pass through” tax treatment, which makes it so members pay taxes on their share of the LLC’s profits and the LLC pays none. This avoids the “double-taxation” with corporations, which pay tax on the corporation’s income and then owners pay tax on income from the corporation. If you want, your LLC also may be taxed as a corporation, with members receiving salaries for their work; this is done by filing with the IRS an election to be taxed as an “S” corporation (referring to sub-section S of a part of the tax code).
In Utah, one forms an LLC by filing with the Department of Commerce a certificate of organization, which specifies the information about the company the state requires, such as:
Utah does not require a certificate of organization to include names or addresses of members. This can be advantageous for privacy.
The Utah Department of Commerce has free forms for your certificate of organization and to amend your certificate of organization.
A Utah LLC may have one member or several members. If it has more than one member, there are two ways to split voting power: (1) each member’s vote corresponds to his or her percentage ownership, or (2) each member gets one vote – called “per capita” voting. Most multi-member LLCs allot votes in proportion to ownership; that is, a member who has contributed more to the company gets more of a vote
Your LLC must have a “registered agent” with a Utah office. The main function of a registered agent is to receive official documents for the company, such as tax notices and notices to renew registration with the state. The registered agent also will accept service of process on behalf of the LLC if legal claims are brought against it.
Your registered agent may have an address different from the LLC’s business address. It’s common practice for an LLC owner or manger to serve as the registered agent. If your LLC also is registered in another state, it must keep a registered agent in that state, too.
LLC members normally have an agreement between them to specify how the company is managed, and what happens if a member dies or resigns. This agreement is called an “operating agreement.” It’s like bylaws and shareholder agreements for corporations. Often operating agreements include “buy-sell” terms; these describe what happens when a member dies, retires or leaves, or becomes disabled or bankrupt.
An operating agreement may be signed either before or after filing the certificate of organization. It’s best to have a written operating agreement, otherwise Utah LLC statutes govern relationships between members, which may or may give the results you intend. And disagreements between members can be avoided with an operating agreement with clear terms.
LLC operating agreements vary in complexity, but usually contain this information:
Every LLC must have its own bank account, one separate from the personal accounts of the owner or owners. To open a bank account, most banks require only a copy of your certificate of organization, with the state’s date of acceptance stamped on it and your federal Employer ID Number (you may get your LLC’s EIN by applying for it online). Most banks may require a resolution by the LLC’s members or organizer authorizing opening of the account. The resolution must state who has authority to set up the account for the LLC. Because bank requirements vary from bank to bank, contact your bank and ask about their requirements for new business accounts.
Unlike a corporation, an LLC may dispense with meetings for owner meetings. An LLC does nothing legally wrong by not holding member meetings. If your LLC’s certificate of organization or operating agreement does not require such meetings, you will suffer no penalty for failure to have such meetings. However, it’s always advisable to conduct regular meetings between members to ensure smooth operations, especially if your LLC has several members and some don’t work for the LLC but are only investors.
Like a corporation, an LLC may do business in more than one state. If your LLC has an office in another state, it must qualify to do business in that state, which usually involves filing papers with the state’s secretary of state and paying filing and other fees, similar to the filings and fees you paid to set up your LLC in Utah. Your LLC must comply with the other state’s laws if it does significant business in that state. These laws include employment and employee compensation laws.
Members of an LLC do not transfer ownership through sales of shares as owners of corporations do. Ownership may be transferred only with the consent of other members, unless all the members otherwise agree.
I hope this short summary of how to use limited liability companies helps you understand better the role they can play in your business.
–Robert A. Youngberg
