A Limited Liability Company (LLC) is a separate legal entity that can conduct business just like a corporation with many of the advantages of a partnership. It is taxed as a partnership. Its owners are called members and receive income from the LLC just as a partner would. There is no tax on the LLC entity itself. The members are not personally liable for the debts and obligations of the entity like partners would be. Basically, an LLC combines the tax advantages of a partnership with the limited liability feature of a corporation.
An LLC is formed by filing articles of organization with the secretary of state in the same type manner that articles of incorporation are filed. The articles must contain the name, purpose, duration, registered agent, and principle office of the LLC. The name of the LLC must contain the words Limited Liability Company or LLC. An LLC is a separate legal entity like a corporation.
Management of an LLC is vested in its members. An operating agreement is executed by the members and operates much the same way a partnership agreement operates. Profits and losses are shared according to the terms of the operating agreement.
A Massachusetts Sample Limited Liability Company (LLC) Operating Agreement is a legal document that outlines the internal structure, management, and ownership provisions of an LLC. It serves as a crucial foundational document for the LLC's operations, ensuring smooth functioning and defining the relationship between its members. One crucial aspect of this agreement is the division of company assets into ownership shares, which determines each member's stake in the LLC. This operating agreement can take different forms, depending on the specific needs and requirements of the LLC. Some common types include: 1. Equal Ownership Operating Agreement: This type of operating agreement is used when all members of the LLC have an equal ownership share in the company's assets. Each member has an equal say in decision-making processes and is entitled to an equal distribution of profits. 2. Proportional Ownership Operating Agreement: Unlike the equal ownership agreement, this variant allocates ownership shares based on each member's investment or contribution to the company. The larger the investment, the higher the ownership stake, and the proportionate decision-making power and profit distribution. 3. Majority Control Operating Agreement: This agreement is adopted when a majority member or a group of members collectively hold the majority of ownership shares. Such members possess greater control over decision-making processes and have the authority to approve or veto important decisions impacting the LLC. 4. Minority Protection Operating Agreement: In contrast to a majority of control agreement, this type of operating agreement aims to protect the interests and rights of minority members. It may establish provisions that require the consent or approval of minority members for specific actions, ensuring their voice is heard and their interests are safeguarded. 5. Vesting Operating Agreement: This arrangement is useful when forming an LLC with members who provide different services or have varying levels of commitment. Vesting schedules are implemented to gradually allocate ownership shares to members based on their continued involvement or the achievement of specific milestones over a predetermined period. In Massachusetts, these various types of operating agreements with ownership share allocation can be customized to suit the specific needs of an LLC. It is crucial for LLC owners to carefully draft and execute the operating agreement, seeking legal counsel to ensure compliance with state laws and protection of all members' interests.
