Low-profit Limited Liability Company (L3C)
A low-profit limited liability company is a business structure that is available in some jurisdictions (although not Delaware).Although the purpose may be altruistic, most believe these entities serve no practical purpose because a traditional LLC can set-up its operating agreement to provide for this structure without a separate entity type. The requirements and benefits of an L3C vary among states.
A legal entity which begins with the filing of a Certificate of Limited Partnership. It classifies partners into two types: operating partners called General Partners and passive investors called Limited Partners. An LP consists of one or more “general partners” who manage the company and are held liable for company debts and expenses, as well as one or more “limited partners” who are passive investors and not held liable for company debts and expenses.
LLP (Limited Liability Partnership)
A LLP is a legal entity whose partners are 100% personally liable for his or her personal negligence, but not for acts of negligence committed by the other partners. It is created through the filing of a Certificate of Limited Liability Partnership. This is usually only used by professionals, like lawyers and doctors because historically they were not allowed to operate as corporations or limited liability companies for public policy reasons (the government did not want professionals using a corporate veil to hide from their personal negligence). The franchise tax paid is based on the number of partners, which is $200 per year per partner.
LLC units represent ownership interests in an LLC. LLC members do not have “shares of stock”, but rather receive Units/Interests that collectively equal 100% ownership in the LLC. Units may be in different classes, such as voting and non-voting. LLC units have rights and privileges as determined by the operating agreement which often imposes restrictions on fee transfer and assignability. The advantage of these restrictions is it may make it easier to keep your business partner from selling his interests to your competitor. They often provide for a right of first refusal on the LLC to buy out the units in the case of certain trigger events, such as a member leaving the employment of the company or death. These restrictions on transfer can be helpful in the event of a problem to keep the company.
LLC (Limited Liability Company)
A traditional LLC is established upon the filing of a Certificate of Formation with the Secretary of State. It is owned by one or more Members and operated by one or more Managers or Managing-Members, as set out in an LLC Operating Agreement. The LLC is the most popular form of business entity. It has grown in popularity because it is superior to the corporation in that the LLC offers more asset protection, organizational structure flexibility, operational flexibility and tax flexibility. It is also simple to set-up and operate with few formalities. It is well designed to hold passive assets like real estate and conduct active businesses. It is also well designed for everything from the one-man-shop to extremely large scale businesses. It is also flexible enough to be used for venture capital funding and joint ventures. Rather than having many default rules govern their operation and limitations, they can be crafted into an agreement where all the owners’ rights arise from the rights and obligations contained in the LLC operating agreement. The members are treated like professionals who are sophisticated and able to negotiate terms to protect their interests ahead of time. The member’s rights are all in the agreement, so owning a stock certificate (membership certificate) is not necessary. Most LLCs do not require annual meetings and have very few corporate formalities. Almost everyone is comfortable with this corporate form which is now in all fifty states. A newer form of LLC is called a series LLC, which allows for firewalls of liability protection within one entity.
A limited partner (to be distinguished from a general partner) is a passive investor in a limited partnership that is not permitted to engage in the management of the limited partnership and therefore that limited partner does not have personal liability for the obligations of the limited partnership.