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Choosing a Legal Structure, pt.3:
The Limited Liability Company

Limited Liability Companies (LLC) are a newer form of organization for businesses in Alabama, having been adopted on May 20,1993 with passage of the Alabama Limited Liability Company Act. As defined in the act, Limited Liability Companies are non-corporate entities under which neither the owners nor the business managers are personally liable for the LLC's obligations.

How to Form an LLC

1. One or more people may form an LLC.

2. The LLC is formed by filing articles of organization with a probate judge of the county in which the initial registered office of the LLC is to be located.

3. These articles include the name of the company. The name must contain the words Limited Liability Company or L.L.C. as the last words of the name. These articles also include the purpose for which the LLC is organized, the names of the members of the LLC, and the roles of the members in the business relationship.

General Features

The LLC allows the owners of the company to be classified as a partnership for tax purposes. Partnerships do not pay any income tax at the company level. The partners pay personal income taxes on their share of any partnership earnings. Since January 1, 1997, a limited liability company with two or more members is treated like a partnership for tax purposes unless it elects to be treated as a corporation. Single member LLC's are treated like a proprietorship for tax purposes.

Advantages of an LLC

Disadvantages of an LLC

Next section: Procedures for Incorporation

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