A Pennsylvania Limited Liability Company (an “LLC”) is generally considered a hybrid between a corporation and a partnership, and may be thought of as a limited partnership without a general partner. It provides the liability protection of a corporation with the advantage of being treated as a partnership for certain tax purposes.
The equity holders of an LLC, referred to as “members,” and the managers of the LLC generally are not liable for the debts, obligations, or liabilities of the LLC, nor are the members liable for any acts or omissions of the other members, managers, agents or employees of the LLC. While the members are protected against the malpractice of others and the general liabilities of the LLC, they are personally liable for their own negligent or wrongful acts or misconduct, or the acts of any person under their direct supervision.
LLCs may be managed by the members themselves or by one or more managers. The business affairs of the LLC are governed by a document referred to as an “operating agreement,” which is similar to both a partnership agreement of a partnership and the by-laws of a corporation.
An LLC dissolves upon certain events, including the death, retirement, resignation or expulsion of a member, unless the business of the LLC is continued by the consent of all of the remaining members.
Unlike S-corporations which must generally allocate items of income, gain, loss, and deductions on a pro rata basis among all shareholders, an LLC may provide that the ratio of the LLC members’ interests in or contributions to capital is different from the members’ allocation of profits and losses and distribution ratios. Also, because an LLC is treated as a partnership for federal tax purposes, the LLC members have a number of tax advantages not available to S corporation shareholders, including the fact that LLC members receive a basis increase for their share of the LLC liabilities.
If you would like to learn more about LLCs in Pennsylvania, please contact our office.
— Denise Ciampitti