About LLC Entities and Law Firms

By definition, a limited liability company (LLC) is a structure of business that safeguards owners from debt or liability responsibility. These are hybrid companies that combine corporate characteristics with sole proprietorship or partnerships. The limited liability aspect of an LLC is similar to that of corporations, but the availability of taxation to members of the LLC is a feature of a partnership. 

A limited liability company (LLC) is built similarly to a corporate structure, and protects owners from being pursued for the liabilities and debts. The regulations for LLC entities vary on the state level. Any individual or entity can be an LLC member, with the exception of insurance companies and banks. LLCs do not directly pay taxes on their profits, and their losses and profits are passed-through to members, who send reports for them on personal individual tax returns. 

The owners of LLCs are usually referred to as “members”, and anyone can become a member including corporations, individuals, foreign entities, foreigners, and other LLCs. As stated above, certain entities cannot create LLCs, such as insurance companies and banks. An LLC is a business arrangement that necessitates articles of organization being filed with that state. Typically, an LLC is easier to establish compared to a corporation, and allows for more protection and flexibility for investors. 

When a company chooses to file as an LLC entity, it must build a board of directors, decide on a registered agent, and complete the articles of organization. A registered agent is a third-party representative who is responsible for the intake of process notices, official notifications, and State Secretary correspondence. This person may or may not have a consistent role in the daily operations of the business. If there is no registered agent, the LLC runs the risk of penalties such as being subjected to fines, having the business license taken away, being unable to partake in legal contracts, and more. 

An LLC may choose to not pay federal taxes, however, instead their losses and profits are reported on the owner’s personal tax returns. An LLC may be designated as a corporation classification, and if fraud is suspected or the company does not meet its requirements, creditors may go after the LLC members. Articles of organization must be submitted to the state. Each member of the LLC has obligations, duties, rights, powers, and liabilities. The articles of organization are filed and there is a fee that must be paid. To obtain an employer identification number (EIN), certain paperwork will have to be submitted at the federal level. 

As a personal injury lawyer from Cohen & Cohen, P.C. can explain, there are different types of law firms and what this means. When someone gets injured, they may need a legal representative to assist them. A law firm can become an LLC for financial and legal protection. If a member of an LLC has a lawsuit against them, the other members will be safeguarded from liability, so only that one member will be impacted. If a law firm operates as a sole proprietorship or single-owner LLC, the owner’s profits are taxed under self-employment.