The mixture between a corporation and a partnership is known as a limited liability company (LLC). The LLC has the restricted liability advantages of a corporation but a partnership’s management and tax features. These organizations were created to provide security and flexibility to small business owners. Mississippi has passed the Revised Mississippi Limited Liability Company Act to regulate the creation and administration of LLCs there.
Additionally, LLCs are not subject to “entity level” taxation, unlike partnerships. As an LLC, they do not pay taxes, in contrast to corporations. Members who have made a profit are the only ones who pay taxes. The decision to form an LLC is not without drawbacks. Due to the liability of LLC arrangements, owners may be held liable for their own negligence.
What Distinguishes a Limited Liability Company from Other Business Structures?
The structure of LLCs differs from those of other popular corporate structures. Revenue from LLCs is only taxed once, unlike income from corporations. In other words, the LLC is not taxed on the income; rather, only the individual members are.
This tax structure also applies to limited partnerships, partnerships, and sole proprietorships. The ownership structure of limited liability businesses is different from that of corporations. Corporations are owned by shareholders, whereas individual owners own LLCs.
In terms of liability, LLCs are distinct from both partnerships and sole proprietorships. A partnership’s partners are personally responsible for any debts the partnership accrues. These debts consist of obligations made by the other partner.
In other words, if a partnership owes a creditor money, the creditor has the right to “come after” the partners’ personal and real property to collect on the debt. In most cases, LLC owners are not held personally responsible for the obligations or debts incurred by the LLC. Because of this reality, LLC owners can operate the company without worrying about losing their individual assets.
Who Ought to Establish a Limited Liability Company
People who want to run a small business should think about creating an LLC. Creating an LLC limits liability to the assets owned by the LLC, protecting individual assets. A small business owner can avoid using their personal assets to cover legal costs by creating an LLC.
People who want to start a business with the least amount of paperwork and expense should also think about incorporating an LLC. The state must be notified of the creation of an LLC by filing “articles of organization” and a fee.
Usually, this charge is lower than the one needed to incorporate a corporation. When compared to corporation creation, LLC formation often involves less documentation to be filed with the state.
Additionally, keeping track of LLC earnings and outlays is not difficult. Separate tax returns need not be filed under an LLC. Members and management instead record their earnings and outlays on personal tax returns.
Managing an LLC can be fairly easy. An LLC with at least two members may create an operating agreement. The members specified in this agreement how the LLC will be run, how earnings will be distributed, and which members’ votes will be required for which decisions. The operating agreement may also specify the procedure for dissolving or terminating the LLC.
The operating agreement may also specify procedures for resolving disputes amongst LLC members. What happens if an LLC member passes away or becomes incapable of working may be covered by the operating agreement.
What Conditions Must an LLC Meet?
According to Mississippi law, LLCs must disclose certain basic facts to the public. The name of the LLC, the date of incorporation (the day the LLC was registered with the state), the principal address of the LLC, the name of the LLC’s agent (where a lawsuit would be delivered), and the names of any officers and directors will all be made public information (s).
What Is Protected by the LLC? What Does It Not Guard Against?
Even while the LLC form shields members’ private property from a lawsuit, things change if the case alleges a member of the LLC was negligent. A member of an LLC may be held personally accountable for negligence if a court finds the member to have acted recklessly. Additionally, an LLC member is personally responsible for deliberate torts.
For instance, an LLC member is personally responsible for any battery committed during negotiations with another corporate company.
What Documentation Is Required to Form an LLC?
According to Mississippi law, a limited liability company (LLC) must maintain the following records at its principal place of business:
- A list of each member and manager’s full name and last known street address.
- Copies of the operating agreements.
- The certificate of formation.
- A statement of the LLC’s assets and financial position (unless contained in the certificate of formation or the operating agreement).
The creation paperwork for the LLC may also contain specific guidelines that managers and members of the LLC must follow. The LLC must additionally furnish an Employer Identification Number (often referred to as an “EIN” or “FEIN”) and submit a notice of formation to the state.
What Perks Does an LLC Get in Mississippi?
Mississippi law offers management and members of LLCs significant liability protections, as does the law of the majority of states. In the event that a client sues an LLC because it has broken a contract, the members and managers are not held personally accountable; instead, the LLC’s assets are at risk.
What Drawbacks Does an LLC Face in Mississippi?
Operating an LLC has drawbacks, such as limitations on asset transfers and sales, corporate governance requirements (requiring interaction and cooperation with other members and management of the LLC), and documentation and state filing requirements.
These drawbacks are typically balanced by the advantages of having restricted personal liability and the ease and speed with which members of these companies can file their taxes.
When Would LLC Members Be Individually Liable?
The LLC structure shields owners from personal liability for misconduct committed by other members while the business is in operation. The LLC, not a specific member or owner, is responsible if the violation occurs while conducting business.
If members negligently cause harm to another person while conducting business, commit fraud while doing so, or steal LLC assets, they are held personally accountable.
LLCs frequently purchase general liability insurance to cover the costs associated with lawsuits alleging carelessness. This insurance covers these injuries’ expenditures. Therefore, it is not necessary to transform business assets into cash in order to pay a court judgment. Individual managers, members, and staff are all capable of acting negligently. Plaintiffs in negligence claims may demand significant financial awards.
The LLC can be forced to dissolve if it lacks general liability insurance and has insufficient assets to cover losses. Professional limited liability companies (PLLCs), often known as LLCs, operated by professionals, should consider acquiring both general and professional liability insurance. Lawyer and medical malpractice insurance are examples of professional liability insurance.
Where Can You Discover the Ideal Attorney?
Inadequate LLC formation and management can have detrimental financial effects. You can get guidance on the requirements for filing and formation from a corporate attorney. The lawyer can also go over the LLC’s tax and insurance obligations. The LLC may also be represented in court by a business attorney. To understand your alternatives under Mississippi law, speak with a knowledgeable business attorney in Mississippi right now.
