Abbreviated LLC. (Civil Law) A corporation owned by members that do not issue negotiable share certificates and is subject to minimal public disclosure laws.
(United States) A form of doing business combining limited liability for all owners with taxation as a partnership.
“Limited Liability Companies are creatures of contract, ‘designed to afford the maximum amount of freedom of contract, private ordering and flexibility to the parties involved.’” R & R Capital, LLC v. Buck & Doe Run Valley Farms, LLC, C.A. No. 3803-CC, 2008 WL 3846318, at *4 (Del. Ch. Aug. 19, 2008) (quoting TravelCenters of Am., LLC v. Brog, C.A. No. 3516-CC, 2008 WL 1746987, at *1 (Del. Ch. Apr. 3, 2008)). Delaware’s LLC Act thus allows LLC members to “‘arrange a manager/investor governance relationship;’ the LLC Act provides defaults that can be modified by contract” as deemed appropriate by the LLC’s managing members. R & R Capital, LLC v. Buck & Doe Run Valley Farms, LLC, C.A. No. 3803-CC, 2008 WL 3846318, at *4; see Myron T. Steele, Judicial Scrutiny of Fiduciary Duties in Delaware Limited Partnerships and Limited Liability Companies, 32 DEL. J. CORP. L. 1, 5 (2007). The LLC Act explicitly states that “[i]t is the policy of this chapter to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.”6 Del. C. § 18-1101(b).
See Hagan v. Adams Prop. Assocs., Inc., 253 Va. 217, 482 S.E.2d 805, 807 (1997) (holding that limited liability company can exchange property for debt relief in its own name because it is an entity separate from its members).
A limited liability company (LLC) has been described as 'an unincorporated association of investors, called members in LLC parlance, whose personal liability for obligations of the venture are limited to the amount invested.' Joseph W. Boucher et al., LLCs and LLPs: A Wisconsin Handbook § 1.4 (rev. ed.1999). It is a distinct business entity that adopts and combines features of both partnership and corporate forms. Id. From the partnership form, the LLC borrows characteristics of informality of organization and operation, internal governance by contract, direct participation by members in the company, and no taxation at the entity level. Id. From the corporate form, the LLC borrows the characteristic of protection of members from investor-level liability. Id. Flexible in nature, the LLC allows direct involvement and control by its members yet also permits a corporate representative form of governance if the entity elects to be governed by managers. Id.
The first LLC statute was enacted by Wyoming in 1977 as special interest legislation for an oil and gas exploration company. William Callison & Maureen A. Sullivan, Limited Liability Companies: A State-by-State Guide to Law and Practice § 1.5 (2004). Florida adopted a similar provision five years later. Id. Initially, there was relatively little interest in these acts because of the uncertainty surrounding the LLC's ability to be taxed as a partnership. Susan Pace Hamill, The Origins Behind The Limited Liability Company, 59 Ohio St. L.J. 1459, 1469 (1998). However, that would eventually change. In 1988, the IRS issued Revenue Ruling 88-76, allowing the Wyoming LLC to secure partnership classification for income tax purposes, despite the presence of limited liability. Id. at 1469-70. After this landmark decision, states began passing legislation allowing for the formation of LLCs. Id. at 1470. By the end of 1996, every U.S. jurisdiction had enacted its own LLC statute. Id. at 1477. This development has prompted some commentators to hail the LLC as '[t]he legal phenomenon of the 1990s, at least for business practitioners.' Boucher et al, LLCs and LLPs, at § 1.1. See also Larry E. Ribstein, LLCs: Is The Future Here?, 13 Business Law Today 11 (November/December 2003). To date, only nine jurisdictions in the United States have substantially adopted the Uniform Limited Liability Company Act: Alabama, Hawaii, Illinois, Montana, South Carolina, South Dakota, Vermont, the Virgin Islands, and West Virginia. See Uniform Limited Liability Company Act Annotated. For a discussion of the Uniform Act, see Larry E. Ribstein, A Critique of the Uniform Limited Liability Company Act, 25 Stetson L.Rev. 311 (Winter 1995).
LLCs are particularly difficult to categorize because they are hybrid business entities that combine features of corporations, general partnerships, and limited partnerships. LLCs lack standardized membership rights or organizational structures, they can assume an almost unlimited variety of forms.
The limited liability company is a relatively recent innovation in the law governing business entities. Wyoming adopted the first LLC statute in 1977, but the majority of states did not adopt LLC legislation until the 1990s, largely because the tax treatment of such companies was in doubt. See 1 Larry E. Ribstein and Robert R. Keatinge, Ribstein and Keatinge on Limited Liability Companies 1.06 & 16.02 (1997). These doubts have been largely resolved, and the LLC has become a popular form of business organization because it offers members the limited liability protection of a corporation, together with the single-tier tax treatment of a partnership along with considerable flexibility in management and financing.
The ability to avoid two levels of income taxation is an especially attractive feature of organization as a limited liability company. See id. 1.03 -1.06; 1 Cathy Stricklin Krendl and James R. Krendl, Colorado Methods of Practice 4.1 (1997). In 1990, The Colorado General Assembly adopted the LLC Act, a statute currently codified as amended at sections 7-80-101 through 7-80-1101, 2 C.R.S. (1997), making Colorado the third state, behind Wyoming and Florida, to do so. Unlike a number of other states, where LLC statutes were based on a model act drafted by the National Conference of Commissioners on Uniform State Laws, Colorado's LLC Act combined features of the state's existing limited partnership and corporation statutes. See John R. Maxfield et al., Colorado Enacts Limited Liability Company Legislation, 19 Colo. Law. 1029 (June 1990). In any case, the LLC Act includes the same basic features of limited liability, single-tier tax treatment, and planning flexibility shared by the Uniform Limited Liability Company Act and LLC legislation adopted by other states. Colorado passed the LLC Act into law for several reasons, but the importance of the tax benefits derived from the use of the LLC should not be overlooked. 'For . . . the drafters of [the] very early LLC statutes, securing the promised federal tax benefits was the paramount drafting concern.' Dale A. Oesterle, Subcurrents in LLC Statutes: Limiting the Discretion of State Courts to Restructure the Internal Affairs of Small Business, 66 Univ. Colo. L. Rev. 881, 883. See also William J. Carney, Limited Liability Companies: Origins and Antecedents, 66 Univ. Colo. L. Rev. 855, 858 (IRS Revenue Ruling 88-76 (Rev. Rul. 88-76, 1988-2 C.B. 361), which provided that a Wyoming LLC could be classified as a partnership for tax purposes, 'opened the floodgates and LLC statutes have now been adopted in nearly all the states'). Thus, it is clear that the 'primary force of LLC statutes' has been to create a business entity that will meet the federal requirements for pass-through tax treatment. Robert B. Thompson The Taming of Limited Liability Companies, 66 Univ. Colo. L Rev. 921, 930.
Unincorporated enterprises are analogized to partnerships, which take the citizenship of every general and limited partner. See Carden v. Arkoma Associates, 494 U.S. 185, 108 L. Ed. 2d 157, 110 S. Ct. 1015 (1990). Limited liability companies are citizens of every state of which any member is a citizen. See Cosgrove v. Bartolotta, 150 F.3d 729 (7th Cir. 1998).