Limited Liability Company (LLC)

Origin and legal basis

The Limited Liability Company (LLC) is a legal form developed in the USA that combines flexibility and limited liability. It has its origins in Wyoming company law, where it was first enshrined in law in 1977. As a legal form, it aims to combine the advantages of partnerships and corporations. The LLC is created by filing a partnership agreement with the Secretary of State of the respective state. It is characterized by its flexibility in company structure and comprehensive liability protection for shareholders. The legal form was developed to offer small and medium-sized companies an efficient form of organization. It differs fundamentally from German legal forms and requires careful legal interpretation.

Corporate structure

The LLC can be formed with one or more shareholders. In many US states, a one-person LLC is also possible. The shareholders are not personally liable for the company’s liabilities. The internal organization is regulated in the operating agreement, which defines the management, representation and distribution of profits. In contrast to corporations, the shareholders can design the company structure flexibly. Formation requires the submission of Articles of Organization with details of the company name, business purpose and shareholders. The LLC has its own legal personality without being a traditional corporation.

Tax treatment

The tax treatment of the LLC is particularly complex. In the USA, it can be treated either as a partnership, a corporation or a tax-transparent entity. Since 1997, the shareholders have had the right to choose, which is binding for five years. In the case of partnership taxation, profits are attributed directly to the partners (pass-through taxation). In Germany, the tax classification is based on an overall comparison. An LLC can be classified as a corporation, partnership or dependent branch. Taxation varies considerably depending on the classification.

International legal challenges

The classification of an LLC in Germany is complex. Criteria such as limitation of liability, shareholder structure and company organization are decisive. The assessment is based on an overall comparison. No single characteristic is decisive on its own. If there are any uncertainties, the LLC is classified as a corporation. There are special tax and legal features for shareholders resident in Germany. The classification affects taxation, profit distributions and international tax treaties.

Areas of application and advantages

The LLC is particularly suitable for small and medium-sized companies. It offers liability protection and tax flexibility. Start-ups and business founders benefit from the simple formation and freedom of organization. The legal form avoids the over-regulation of traditional corporations. It enables direct profit allocation and reduces potential tax burdens. The flexibility in structuring the company is a significant advantage.

Future prospects

Digital technologies and international business relationships require flexible legal forms. The LLC represents a modern approach to corporate organization. Future developments will further test the adaptability of this legal form. International harmonization efforts will increase the importance of such flexible legal forms.