LIMITED LIABILITY COMPANY

Limited Liability Company (LLC) DISCLAIMER

•Information presented here is general information.

•Choice of the right legal strategies for your specific situation depends on your fact situation and how the law and market conditions apply to that situation.

•Consult professional advisors such as your , professional, and attorney.

Limited Liability Company (LLC) •In 2012 the number of Georgia LLCs formed exceeded the number of for-profit by a ratio of nearly five-to-one (69,230 LLCs, compared with 15,074 for-profit corporations).

•As of April 8, 2013, there were 332,164 domestic Georgia LLCs active, compared to 204,769 Georgia for-profit corporations.

•A limited liability company may be formed for any lawful purpose.

•Members may include individuals, corporations, other LLC,s and foreign entities.

•An LLC may have only one member (Single Member LLC). . •A Multi Member LLC has two or more members. There is no maximum number of members.

Limited Liability Company (LLC) Limited Liability Company (LLC) Limited Liability Company (LLC) Liability and Protection

Limited Liability Company (LLC) •One of the primary reasons for formation of an LLC is Asset Protection to sheild the owner(s) personal from business obligations.

•Types of Liability oContractual liability- The liability assumed when entering into a contract in which either party to the contract fails to perform in accordance with the terms, otherwise known as a breach of contract. A promise to perform or deliver a service that may be enforced through adjudication.

oTort liability-Legal obligation of one party to a victim as a results of a civil wrong or injury. This action requires some form of remedy from a court system. A tort liability arises because of a combination of directly violating a person's rights and the transgression of a public obligation causing damage or a private wrongdoing. Evidence must be evaluated in a court hearing to identify who the tortfeasor/liable party is in the case.

Limited Liability Company (LLC) •Specifically, you should think about the following liability risks you take on as an LLC owner: opersonal liability for your LLC’s debts ™if you form an LLC to operate your business, and don’t personally guarantee or promise to pay its debts, you will ordinarily not be personally liable for the LLC’s debts. Thus, your LLC’s creditors can go after your LLC’s accounts and other property, but they can’t touch your personal property, such as your personal bank accounts, home, or car. Many creditors, however, don’t want to be left holding the bag if your business goes under so they will demand that you personally guarantee any business , credit cards, or other extensions of credit to your LLC. In that situation, you would be personally liable if your LLC’s assets fall short. opersonal liability for actions by LLC co-owners or employees related to the business ™an LLC will protect owners from personal liability for any wrongdoing committed by the co-owners or employees of an LLC during the course of business. If the LLC is found liable for the negligence or wrongdoing of its owner or employee, the LLC’s money or property can be taken by creditors to satisfy a judgment against the LLC. But the LLC owners would not be personally liable for that debt. The owner or employee who committed the act might also be personally liable for his or her actions but a co-owner of the LLC who was not involved in the act or wrongdoing would not be.

Limited Liability Company (LLC) opersonal liability for your own actions related to the business ™There is one extremely significant exception to the limited liability provided by LLCs. If you form an LLC, you will remain personally liable for any wrongdoing you commit during the course of your LLC business. For example, LLC owners can be held personally liable if they: ¾personally and directly injure someone during the course of business due to their negligence ¾fail to deposit withheld from employees' wages ¾intentionally do something fraudulent, illegal, or reckless during the course of business that causes harm to the company or to someone else, or ¾treat the LLC as an extension of their personal affairs, rather than as a separate legal entity. o the LLC’s liability for other members’ personal debts ™An LLC’s money or property cannot be taken by creditors of an LLC’s owner to satisfy personal debts against the owner. However, instead of taking property directly, there are other things that creditors of an LLC owner can do to try to collect from someone with an ownership interest in an LLC: ¾getting a court to order that the LLC pay to the creditor all the money due to the LLC owner/debtor from the LLC (this is called a “charging order”) ¾foreclosing on the owner/debtor’s LLC ownership interest (In GA only if Operating Agreement allows) ¾getting a court to order the LLC to be dissolved. (In GA only if Operating Agreement allows) Limited Liability Company (LLC) In certain situations, courts can ignore the limited liability status of an LLC and hold its members personally liable for its debts (pierce the corporate veil).

Courts might impose personal liability on LLC members in the following situations.:

• There is no real separation between the company and its owners. If the owners fail to maintain a formal legal separation between their business and their personal financial affairs, a court could find that the LLC is really just a sham (the owners' alter ego) and that the owners are personally operating the business as if the LLC didn't exist. For instance, if the owner pays personal bills from the business checking account or ignores formalities (for example, by making important LLC decisions without recording them in minutes of a meeting).

•The company's actions were wrongful or fraudulent. If the owner(s) recklessly borrowed and lost money, made business deals knowing the business couldn't pay the invoices, or otherwise acted recklessly or dishonestly.

Limited Liability Company (LLC) The most common factors that courts consider in determining whether to hold LLC members personally liability are:

•whether the LLC engaged in fraudulent behavior •comingling of assets oTransferring money between business and personal accounts without documentation. oWriting business checks for personal reasons/expenses, and vise versa. o Having only one bank account for personal and business needs. o Depositing business checks into your personal bank account. o Withdrawing money from your business account to pay personal expenses without documentation. •whether the LLC was inadequately capitalized (if the never had enough funds to operate, it was not really a separate entity that could stand on its own) •whether one person or a small group of closely related people were in complete control of the LLC

Limited Liability Company (LLC) There is no surefire method to protect all of your personal assets as an LLC member. However, LLC members should consider the following to help lessen the risks to their personal assets from the LLC's business activities:

•Run the LLC as an independent entity.

• Buy Appropriate Levels of Insurance- Every individual and business should look at their business situation and seek out adequate liability and professional insurance to help protect personal and business assets.

•Consult early on with a and legal professional to help you assess your individual situation and fully navigate applicable laws and regulations when developing asset protection strategies.

Limited Liability Company (LLC) IRS Classification

Limited Liability Company (LLC) While state law controls the formation of your business, federal tax law controls how your business is taxed. All must file an annual return.

The form you use depends on how your business is organized. Sole proprietorships and C Corporations file an income tax return. and S Corporations file an information return.

For an LLC with at least two members (MMLLC), except for some businesses that are automatically classified as a corporation, it can choose to be classified for tax purposes as either a C Corporation, an S Corporation, or a .

A business with a single member (SMLLC) can choose to be classified as either a C Corporation, an S Corporation, or disregarded as an entity separate from its owner, that is, a “disregarded entity.” As a disregarded entity the LLC will not file a separate return instead all the income or loss is reported by the single member on a Form 1040 Schedule C.

Limited Liability Company (LLC) •A SMLLC will be classified as a “disregarded entity” by default unless it files an election to be classified differently.

•A MMLLC will be classified as a partnership by default unless it files and election to be classified differently. In Georgia an LLC with only two members who are husband and wife is considered a MMLLC.

•LLCs must file a Form 2553, Election by a Small Business Corporation to elect S Corporation Classification.

•LLCs must file Form 8832, Entity Classification Election to elect C Corporation Classification.

Limited Liability Company (LLC)