What is a Limited Liability Company?

Several types of business entities are available today: corporations, general partnerships, limited partnerships, and limited liability companies (LLCs). An LLC is a cross between a partnership and a corporation, with characteristics of each. LLCs have the flexibility of partnerships with the shield of limited liability like corporations.

A limited liability company is an entity separate from its members. It has its own existence. Being a separate entity, an LLC has its own powers, rights and limitations–it can own property, stocks, bonds and bank accounts; buy and sell assets; borrow money; sue and be sued; and make contracts, promissory notes and mortgages.

LLCs are creatures of statute. Each state in the USA has an LLC statute. In preparing LLC statutes, the drafters borrowed heavily from both limited partnership statutes and corporate statutes. LLCs have terminology that is unique. The following table gives a comparison of the terminology used for LLCs to that for corporations:

TERMINOLOGY COMPARISONS
Category LLC Corporation
Entity reference limited liability company corporation
Permitted name references limited company, LC, limited liability company, or LLC corporation, incorporated, corp. or Inc.
Enabling document Articles of Organization Articles of Incorporation
Internal governing documents operating agreement bylaws
Governing group managers or members directors
Owners members shareholders or stockholders
Unit of ownership interest share

In Utah, an LLC is formed when Articles of Organization, in prescribed form, are filed with the Utah Division of Corporations and Commercial Code, an agency in the Utah Department of Commerce. The Articles of Organization are the “charter” document for a limited liability company.

The other governing document for an LLC, the Operating Agreement, is the document that spells out in detail the various rules governing the LLC’s internal affairs as well as the rights and authority of LLC members and managers. If an LLC has no written Operating Agreement, then the “default” rules in the LLC statute will apply.

To prevent misunderstandings among LLC members, and to fully attain the benefits an LLC has to offer, governing documents should be prepared by a competent lawyer.