The Utah Revised Uniform Limited Liability Company Act oversees limited liability companies registered with the State of Utah. A limited liability company, known as an “LLC,” is a business entity that has some of the benefits of a corporation combined with some of the benefits of a partnership. Electing to operate as an LLC is usually a smart choice for small to medium-sized companies with only one or a few owners.
This means that the corporation owners are not personally responsible for the corporation’s debts or damages awarded against it in a lawsuit. One of the downsides of a corporation is so-called “double taxation.” This means that corporate profits are first taxed to the corporation as they are earned.
When the shareholders receive dividends, these profits are taxed to shareholders as capital gains income. A limited liability company offers the benefits of a corporation in that the owners’ assets are covered by creditors and legal claims made against the LLC.
In addition, LLCs, like partnerships, are not taxed at the “entity level.” This means that they do not pay taxes as an LLC, unlike corporations. The only taxes paid are paid by individual members who have earned profit. There are downsides to organizing as an LLC. The liability of LLC structures is such that owners can be sued for negligence.
What Are the Requirements for an LLC?
You must file a certificate of organization with Utah before acquiring the rights and advantages granted to an LLC. A certificate of organization must state:
- The name of the LLC;
- The street and mailing address of the LLC’s principal office;
- The name of at least one organizer of the LLC; and
- If the LLC is a low-profit LLC (a business with limited income), a statement that the LLC is a low-profit business.
There are also special considerations for professional businesses and LLCs with multiple membership types (known as series).
What Paperwork Do I Need to Form an LLC?
Paperwork for your LLC will be filed with the Utah Department of Commerce Division of Corporations and Commercial Code’s website. On that website, you will be able to:
- Register an LLC
- Renew an LLC
- Make modifications to an LLC
- Reinstate an LLC
- Order copies for an LLC
- Buy a Certificate of Existence for an LLC
What Benefits Does Utah Give to an LLC?
Typically, LLCs have the tax advantages of a partnership with the liability protections of a corporation:
- Tax Advantage: LLCs are not taxed at the corporate level. Instead, taxes on the income of the LLC are made at the personal level of the owner-members. This is known as “pass-through” taxation.
- Liability Protection: The owner-members of an LLC are usually shielded from personal liability for the debts of the LLC. If the LLC is sued for negligence, then only the assets of the LLC are at risk. The assets of the owners are usually safe.
What Disadvantages Does Utah Give to an LLC?
The most significant drawback to electing to operate as an LLC is that LLC members owe each other specific duties under the law. For instance, members of an LLC must generally bring possible business opportunities to the LLC before seeking the opportunities away from the LLC.
While this may be straightforward, it can become highly complicated when LLC members have numerous businesses.
How Is a Limited Liability Company Different from Other Business Forms?
LLCs are different in form from other common business entities. Unlike corporation income, LLC income is only taxed once. In other words, the income “passes through” the LLC and is only taxed at the individual member level.
Partnerships, sole proprietorships, and limited partnerships also have this tax structure. Limited liability companies differ from corporations in terms of ownership structure. LLCs are owned by individuals, while shareholders own corporations.
LLCs differ from both partnerships and sole proprietorships in terms of liability. Partners in a partnership are personally responsible for debts incurred by the partnership. These debts include debts incurred by another partner.
This means that if a partnership owes money to a creditor, the creditor can “come after” the individuals’ own individual real and personal property to satisfy the debt. LLC owners typically are not personally liable for liabilities or debts incurred by the LLC. This fact allows LLC owners to manage the business without worrying about losing their own assets.
Who Should Form a Limited Liability Company?
People who want to own a small business should consider forming an LLC. Forming an LLC safeguards individual assets, limiting liability to the LLC’s resources. By creating an LLC, a small business owner, if sued, will not have to pay out of personal assets. People interested in forming a business with minimal paperwork and expenses should also consider forming an LLC. LLC formation requires filing a document called “articles of organization” and a fee with the state.
This fee is typically smaller than the fee required for forming a corporation. LLC formation usually requires less paperwork to be filed with the state than corporation formation. In addition, keeping track of LLC income and costs is relatively painless. Under an LLC, separate tax return filing is not required. Rather, members and managers report income and costs on an individual tax return.
LLC management can also be reasonably straightforward. An LLC with two or more people can create an operating agreement. In this agreement, the members include details about how the LLC is managed, including how earnings will be allotted and what members’ votes are needed for specific actions. The operating agreement can also address how the LLC may be dissolved or shut down. The operating agreement may also provide rules for how conflicts among LLC members are to be settled. The operating agreement may address what transpires if an LLC member dies or becomes incapacitated.
What Does the LLC Protect? What Does It Not Protect?
While the LLC form defends members’ personal assets from a lawsuit, the situation is different if the lawsuit involves a claim of LLC member negligence. If a court determines an LLC member has acted negligently, the member can be individually responsible for that negligence. An LLC member is also individually liable for intentional torts.
For example, if an LLC member commits a battery during negotiations with another business entity, the LLC member is individually liable for that battery.
When Would Members of the LLC Be Personally Liable?
The LLC form shields owners from personal liability for wrongdoing committed by other members during the business. If the wrongdoing is committed in business operations, the LLC, not an individual member or owner, is on the hook.
Individual members are personally liable if they injure someone during business due to negligence, commit fraud in the course of business, and if they steal LLC assets.
LLCs generally purchase general liability insurance to cover the costs of lawsuits alleging negligence. This insurance covers the costs of those injuries. Thus, business assets need not be converted to cash to satisfy a lawsuit judgment. Negligence can be committed by individual managers, members, and workers. In negligence lawsuits, the plaintiffs can pursue large aggregates of money.
If the LLC does not have general liability insurance and has insufficient assets to pay damages, the LLC may be forced to close. LLCs run by experts, called professional limited liability companies (PLLCs), should consider buying both general liability insurance and professional liability insurance. Examples of professional liability insurance include lawyer and physician malpractice insurance.
Where Can You Find the Right Lawyer?
If you believe you need help forming your LLC, then contact a local Utah corporate lawyer to discuss the formation and operation of an LLC. Many pitfalls and obstacles arise in the LLC business model, and it is essential to seek solid legal advice.
