Modern day entrepreneurs have for a long time sought to combine the simplicity of a partnership with the liability protection accorded a corporation or even a limited partnership.
This issue was seemingly addressed when Subchapter S of the Internal Revenue Code was adopted; however, the restrictions so imposed on Subchapter S corporations left many of these entrepreneurs wholly distressed and avowing to seek a better way of doing business which would encompass a combination of both a partnership and corporation.
It was not until the year 1988 that the Internal Revenue Service issued 'Letter Ruling No. 9147017' which granted partnership status, for income tax purposes, to limited liability companies organized under the Wyoming Limited Liability Company Act.
This was of course notable since Wyoming had enacted its limited liability company laws in 1977, even though the core advantage of such laws did not have the approval of the Internal Revenue Service. Thus, from 1977 to 1988, the Wyoming Limited Liability Company Laws were not effective to the extent that it allowed a limited liability company to be a non-taxable entity.
The Internal Revenue Service had long opposed the concept of a partnership tax treatment for a limited liability company on the grounds that Subchapter S of the Internal Revenue Code addressed the relief advocated under the limited liability company laws, since it allowed a corporation the right to elect to be taxed as a partnership.
The inherent problem with Subchapter S is that it imposes some very restrictive requirements on both the number and type of stockholders, the division of profits and the type of corporate income, to name a few. None of these restrictions are present under the limited liability company rules adopted by the Internal Revenue Service.
In 1992, Arizona became the seventeenth state to adopt limited liability company laws, which have been revised several times during the ensuing years. The most recent revision was during 1997 when the laws were revised to the extent that one person could be a limited liability company.
The effect of this revision is that a sole proprietorship can now enjoy the same liability protection as a corporation while being taxed as an individual taxpayer. In other words, the one person limited liability company is not a tax paying entity, but a pass-through entity.
The great news is that this Alpha Arizona Limited Liability Company Kit is the entrepreneurs ultimate working tool since it provides all of the documents, forms and instruments necessary to organize and operate either a regular or professional Arizona Limited Liability Company, including certificates of membership that evidence both each member's interest and percentage of ownership.
A cursory review of the Check List that precedes the Table of Contents shows that this Kit includes, among other things, articles of organization which are similar in many respects to articles of incorporation. And while the governing instrument that formalizes the limited liability company with the State of Arizona is the articles of organization, it is the operating agreement that legally binds the members together as a legally viable business organization.
The Operating Agreement is the singularly most important document in a limited liability company, since it incorporates every agreement, authority, power, privilege and understanding between the members.
The Operating Agreement is a ten page document that includes twenty-seven separate Articles that provide the complete contractual rights and obligations between the members of the limited liability company.
It will however be mentioned here that if the limited liability company is a one person limited liability company, then the operating agreement is not applicable since there are no partnership characteristics present. All of the authorities, privileges and powers are inclusive in the articles of organization and the state limited liability company statutes.
This Kit also includes minutes of the organizational meeting of the members, where the managers are appointed, if management will be vested with managers, and the Operating Agreement is adopted.
Each of these documents and forms are fully described as to their legal and operational purposes in Chapter Five, starting on page 15.
Since the capitalization of a limited liability company is funded with the capital contributions made, or promised to be made, by its members, this kit also includes a legally binding Capital Contribution Agreement, which obligates each member to contribute the amount and kind of agreed upon capital.
In each of the chapters that follow this Introduction, important information is provided regarding not only limited liability companies, but also, sole proprietorships, general partnerships, limited partnerships, "C" corporations and "S" corporations.
This text includes an Appendix A, Pages 31-34 (Yellow Pages), which is a directory of the addresses and phone numbers of the incorporating departments in all 50 states. This information may be helpful if you plan to pursue your business objectives outside of Arizona.
This text also includes an Appendix B, starting on page 35 (Blue Pages), which includes illustrated examples of each of the documents, forms and instruments in this kit. These examples are real life examples that closely resemble the apparent facts in many business situations.
Since this text is briefly written without legal phraseology, every effort should be made to read this material before selecting and preparing the forms."
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