In 1977, Wyoming became the first state in the U.S. to enact Limited Liability Company (LLC) legislation. This new type of business entity attracted a great deal of attention, and other states started following Wyoming’s example.
After a decade, the Internal Revenue Service declared that LLCs would be taxed on the lines applicable to partnerships. This provided the LLC a combination of the limited liability of a corporation and tax advantages of a partnership. The introduction of this new guideline increased the popularity of LLCs. Now all states and the District of Columbia have their own separate acts covering LLCs.
But LLC requirements differ from state to state. For instance, in some states single-member LLCs are permitted. Others require a minimum of two members. (A person having interest in an LLC is called a ‘member,’ not a ‘shareholder.’)
The fees for completing the necessary formalities also differ from state to state. Different states use different terms, as well. The essential document for registering an LLC is known as the ‘Articles of Organization’ in most states. But a few of the states refer to it as a ‘Certificate of Organization’ or ‘Certificate of Formation’. Rules relating to recognition of LLCs registered in other states also differ.
There is software available to help understand all the different states’ rules, but that is no substitute for uniform laws. A move for a Uniform Limited Liability Company Act (ULLCA) began in the 1990s when the National Conference of Commissioners appointed a Drafting Committee consisting of experts in the related fields. A draft of the Act was published in May 2005. This provides for multi-state recognition of LLCs and flexible default codes.
Since LLCs are of recent origin there are very few case laws or precedents.
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