What document defines a time share project under the requirements of the Virginia Non Stock Corporations Act?

The first state to enact a law authorizing the creation of limited liability companies was Wyoming in 1977.[14] The law was a project of the Hamilton Brothers Oil Company, which sought to organize its business in the United States with liability and tax advantages similar to those it had obtained in Panama.[15]

From 1960 to 1997, the classification of unincorporated business associations for the purpose of U.S. federal income tax law was governed by the "Kintner regulations," which were named after the prevailing taxpayer[16] in the 1954 legal precedent of that name.[17] As promulgated by the Internal Revenue Service (IRS) in 1960, the Kintner regulations set forth a complex six-factor test for determining whether such business associations would be taxed as corporations or partnerships.[17] Some of these factors had equal significance, so that the presence of only half of them would result in classification as a partnership. Accordingly, the Wyoming Legislature tailored its statute to grant LLCs particular corporate features without exceeding this threshold.[14]

For several years, other states were slow to adopt the LLC form because it was unclear how the IRS and courts would apply the Kintner regulations to it. After the IRS finally decided in 1988 in Revenue Ruling 88-76 that Wyoming LLCs were taxable as partnerships,[17] other states began to take the LLC seriously and enacted their own LLC statutes.[14] By 1996, all 50 states had LLC statutes.[18] In 1995, the IRS came to the conclusion that the widespread enactment of LLC statutes had undermined the Kintner regulations, and in 1996 it promulgated new regulations establishing a so-called "check the box" (CTB) entity classification election system that went into effect throughout the United States on January 1, 1997.[17]

LLCs are subject to fewer regulations than traditional corporations, and thus may allow members to create a more flexible management structure than is possible with other corporate forms. As long as the LLC remains within the confines of state law, the operating agreement is responsible for the flexibility the members of the LLC have in deciding how their LLC will be governed.[19] State statutes typically provide automatic or "default" rules for how an LLC will be governed unless the operating agreement provides otherwise, as permitted by statute in the state where the LLC was organized.

The limited liability company ("LLC") has grown to become one of the most prevalent business forms in the United States. Even the use of a single member LLC affords greater protection for the assets of the member, as compared to operating as an unincorporated entity.[20]

Effective August 1, 2013, the Delaware Limited Liability Company Act provides that the managers and controlling members of a Delaware-domiciled limited liability company owe fiduciary duties of care and loyalty to the limited liability company and its members. Under the amendment (prompted by the Delaware Supreme Court's decision in Gatz Properties, LLC v. Auriga Capital Corp),[21] parties to an LLC remain free to expand, restrict, or eliminate fiduciary duties in their LLC agreements (subject to the implied covenant of good faith and fair dealing).[22]

Under 6 Del. C. Section 18-101(7), a Delaware LLC operating agreement can be written, oral or implied. It sets forth member capital contributions, ownership percentages, and management structure. Like a prenuptial agreement, an operating agreement can avoid future disputes between members by addressing buy-out rights, valuation formulas, and transfer restrictions. The written LLC operating agreement should be signed by all of its members.[23]

Like a corporation, LLCs are required to register in the states they are "conducting (or transacting) business". Each state has different standards and rules defining what "transacting business" means, and as a consequence, navigating what is required can be quite confusing for small business owners. Simply forming a LLC in any state may not be enough to meet legal requirements, and specifically, if a LLC is formed in one state, but the owner (or owners) are located in another state (or states), or an employee is located in another state, or the LLC's base of operations is located in another state, the LLC may need to register as a foreign LLC in the other states it is "transacting business."[24]

For U.S. federal income tax purposes, an LLC is treated by default as a pass-through entity.[25] If there is only one member in the company, the LLC is treated as a "disregarded entity" for tax purposes (unless another tax status is elected), and an individual owner would report the LLC's income or loss on Schedule C of his or her individual tax return. Thus, income from the LLC is taxed at the individual tax rates. The default tax status for LLCs with multiple members is as a partnership, which is required to report income and loss on IRS Form 1065. Under partnership tax treatment, each member of the LLC, as is the case for all partners of a partnership, annually receives a Form K-1 reporting the member's distributive share of the LLC's income or loss that is then reported on the member's individual income tax return.[26] On the other hand, income from corporations is taxed twice: once at the corporate entity level and again when distributed to shareholders. Thus, more tax savings often result if a business formed as an LLC rather than a corporation.[27]

An LLC with either single or multiple members may elect to be taxed as a corporation through the filing of IRS Form 8832.[28] After electing corporate tax status, an LLC may further elect to be treated as a regular C corporation (taxation of the entity's income prior to any dividends or distributions to the members and then taxation of the dividends or distributions once received as income by the members) or as an S corporation (entity level income and loss passes through to the members). Some commentators have recommended an LLC taxed as a S-corporation as the best possible small business structure. It combines the simplicity and flexibility of an LLC with the tax benefits of an S-corporation (self-employment tax savings).[29]

Some legal scholars argue that corporate income taxes are intended to limit the power of corporations and to offset the legal benefits corporations enjoy, such as limited liability for their investors.[30] There is concern that LLCs, by combining limited liability with no entity-level taxation, could contribute to excessive risk-taking and harm to third parties.[31][32][33]

Although there is no statutory requirement for an operating agreement in most jurisdictions, members of a multiple member LLC who operate without one may encounter problems. Unlike state laws regarding stock corporations, which are very well developed and provide for a variety of governance and protective provisions for the corporation and its shareholders, most states do not dictate detailed governance and protective provisions for the members of a limited liability company. In the absence of such statutory provisions, members of an LLC must establish governance and protective provisions pursuant to an operating agreement or similar governing document.

• It may be more difficult to raise financial capital for an LLC as investors may be more comfortable investing funds in the better-understood corporate form with a view toward an eventual IPO. One possible solution may be to form a new corporation and merge into it, dissolving the LLC and converting into a corporation.
• Many jurisdictions—including Alabama, California, Kentucky, Maryland, New York, Pennsylvania, Tennessee, and Texas—levy a franchise tax or capital values tax on LLCs. In essence, this franchise or business privilege tax is the fee the LLC pays the state for the benefit of limited liability. The franchise tax can be an amount based on revenue, an amount based on profits, or an amount based on the number of owners or the amount of capital employed in the state, or some combination of those factors, or simply a flat fee, as in Delaware.
  • Effective in Texas for 2007 the franchise tax is replaced with the Texas Business Margin Tax. This is paid as: tax payable = revenues minus some expenses with an apportionment factor. In most states, however, the fee is nominal and only a handful charge a tax comparable to the tax imposed on corporations.
  • In California, both foreign and domestic LLCs, corporations, and trusts, whether for-profit or non-profit—unless the entity is tax exempt—must at least pay a minimum income tax of $800 per year to the Franchise Tax Board; and no foreign LLC, corporation or trust may conduct business in California unless it is duly registered with the California Secretary of State.
• Renewal fees may also be higher. Maryland, for example, charges a stock or nonstock corporation $120 for the initial charter, and $100 for an LLC. The fee for filing the annual report the following year is $300 for stock-corporations and LLCs. The fee is zero for non-stock corporations. In addition, certain states, such as New York, impose a publication requirement upon formation of the LLC which requires that the members of the LLC publish a notice in newspapers in the geographic region that the LLC will be located that it is being formed. For LLCs located in major metropolitan areas (e.g., New York City), the cost of publication can be significant.
• The management structure of an LLC may not be clearly stated. Unlike corporations, they are not required to have a board of directors or officers. (This could also be seen as an advantage to some.)
• Taxing jurisdictions outside the US are likely to treat a US LLC as a corporation, regardless of its treatment for US tax purposes—for example a US LLC doing business outside the US or as a resident of a foreign jurisdiction.[46] This is very likely where the country (such as Canada) does not recognize LLCs as an authorized form of business entity in that country.
• The principals of LLCs use many different titles—e.g., member, manager, managing member, managing director, chief executive officer, president, and partner. As such, it can be difficult to determine who actually has the authority to enter into a contract on the LLC's behalf.

1. ^ The rules contained in Treasury Regulation 1.704-1 must also be met.[34]
2. ^ An S corporation may have no more than 100 shareholders.[35] An individual, their spouse, and their family members within six common ancestors may typically be considered to be one shareholder for the purpose of this test.[36][37]
3. ^

   For purposes of U.S. tax law, residency is not the same as the location where a person lives. A U.S. citizen or U.S. national is always a U.S. tax resident. A lawful permanent resident of the U.S. at any time during a calendar year is typically a U.S. tax resident that year.[38][39]

   In other cases, an individual is typically a U.S. tax resident if the individual was physically present in the U.S. on at least 31 days during the current year, and 183 days during the three-year period that includes the current year and the two years immediately before that, counting all the days present in the current year, and one-third of the days present in the first year before the current year, and one-sixth of the days in the second year before the current year. In some cases, an individual does not count days physically present in the U.S. while in certain visa statuses, such as F-1, J-1, M-1, Q-1.[40] Alternatively, an individual may not be a U.S. tax resident if the individual was present in the U.S. less than 183 days during the year, the individual had a closer connection to one foreign country in which the individual has a tax home than to the U.S., the individual maintained a tax home in that foreign country during the entire year, and the individual has neither pursued nor has a pending application for U.S. lawful permanent resident status.[41]

1. ^ Schwindt, Kari (1996). "Limited Liability Companies: Issues in Member Liability". UCLA Law Review. 44: 1541.
2. ^ "Limited Liability Company (LLC)". Internal Revenue Service. Retrieved October 9, 2019.
3. ^ McCray, Richard A.; Thomas, Ward L. "Limited Liability Companies as Exempt Organizations" (PDF). Internal Revenue Service. Retrieved October 9, 2019.
4. ^ a b Akalp, Neil (August 10, 2016). "Should You Structure Your Accounting Firm as an LLC, PLLC or PC?". Accounting Today. SourceMedia. Retrieved October 9, 2019.
5. ^ Larson, Aaron (May 8, 2018). "What is a Limited Liability Company (LLC)". ExpertLaw.
6. ^ Bischoff, Bill (May 1, 2017). "The advantages of owning real estate in a single-member LLC". MarketWatch, Inc.
7. ^ Johnston, Kevin. "What Is the Difference Between a Shareholder Vs. a LLC Member?". Hearst Newspapers, LLC. Houston Chronicle. Retrieved October 9, 2019.
8. ^ Friedman, Scott E. (1996). Forming Your Own Limilted Liability Company. Dearborn Trade Publishing. p. 60. ISBN 9780936894935.
9. ^ Macey, Jonathan R. (March 27, 2014). "The Three Justifications for Piercing the Corporate Veil". The Three Justifications for Piercing the Corporate Veil.
10. ^ Klein, Shaun M. (1996). "Piercing the Veil of the Limited Liability Company, from Sure Bet to Long Shot: Gallinger v. North Star Hospital Mutual Assurance, Ltd". Journal of Corporate Law. 22: 131.
11. ^ Vandervoort, Jeffrey K. (2004). "Piercing the Veil of Limited Liability Companies: The Need for a Better Standard". DePaul Business and Commercial Law Journal. 3: 51.
12. ^ Adkisson, Jay (April 30, 2013). "The Misunderstood Charging Order". Forbes.
13. ^ See, e.g., "Delaware Code, Title 6, Chapter 18, Limited Liability Company Act". State of Delaware. Retrieved October 9, 2019.
14. ^ a b c Maynard, Therese H.; Warren, Dana M.; Trevino, Shannon (2018). Business Planning: Financing the Start-Up Business and Venture Capital Financing (3rd ed.). New York: Wolters Kluwer. p. 137. ISBN 9781454882152. Retrieved September 22, 2020.
15. ^ Hamill, Susan P. (1998). "The Origins Behind the Limited Liability Company". Ohio State Law Journal. 59 (5): 1459–1522.
16. ^ United States v. Kintner, 216 F.2d 418 (9th Cir. 1954).
17. ^ a b c d Field, Heather M. (January 2009). "Checking In on 'Check the Box'". Loyola of Los Angeles Law Review. 42 (2): 451–528. Retrieved September 22, 2020.
18. ^ "LLCs: Is the Future Here? A History and Prognosis". www.americanbar.org. October 2004. Archived from the original on May 2, 2018.
19. ^ "Pros and Cons of a Limited Liability Company (LLC)". AllBusiness.com. Retrieved October 9, 2019.
20. ^ Miller, Shari P. "Single Member LLC Vs. Sole Proprietorship Liability". Houston Chronicle. Hearst Newspapers, LLC. Retrieved October 9, 2019.
21. ^ "Gatz Properties, LLC v. Auriga Capital Corp., 59 A. 3d 1206 (2012)". Google Scholar. Retrieved October 9, 2019.
22. ^ Falby, Bruce E. (August 22, 2013). "Delaware amends its LLC Act: managers and controllers owe fiduciary duties unless LLC agreement provides otherwise". DLA Piper.
23. ^ Bainbridge, Stephen (September 27, 2014). "Didn't sign your LLC operating agreement? Think that'll get you off? Think again". ProfessorBainbridge.com.
24. ^ "Register Your Business". SBA. U.S. Small Business Administration. Retrieved October 9, 2019.
25. ^ "Instruction SS-4 (Rev. January 2011)" (PDF). Retrieved October 9, 2019.
26. ^ "LLC Filing as a Corporation or Partnership". IRS. Internal Revenue Service. Retrieved October 9, 2019.
27. ^ Everett, John; Henning, Cherie; Raabe, William (August 2010). "Converting a C Corporation into an LLC: Quantifying the Tax Costs and Benefits". Journal of Taxation. 113 (2).
28. ^ "IRS Form 8832 (Rev. January 2011)" (PDF). Retrieved October 9, 2019.
29. ^ "Tax Advantages of Corporations – Updated for Tax Year 2016". TurboTax. Retrieved October 9, 2019.
30. ^ Avi-Yonah, Reuven S. (September 2004). "Corporations, Society, and the State: A Defense of the Corporate Tax". Virginia Law Review. 90 (5): 1193–1255. doi:10.2307/3202379. ISSN 0042-6601. JSTOR 3202379.
31. ^ Sim, Michael (2018). "Limited Liability and the Known Unknown". Duke Law Journal. 68: 275–332. doi:10.2139/ssrn.3121519. ISSN 1556-5068. S2CID 44186028.
32. ^ Hamill, Susan Pace (November 1996). "The Limited Liability Company: A Catalyst Exposing the Corporate Integration Question". Michigan Law Review. 95 (2): 393–446. doi:10.2307/1290118. ISSN 0026-2234. JSTOR 1290118.
33. ^ Hansmann, Henry; Kraakman, Reinier (May 1991). "Toward Unlimited Shareholder Liability for Corporate Torts". The Yale Law Journal. 100 (7): 1879. doi:10.2307/796812. ISSN 0044-0094. JSTOR 796812.
34. ^ "26 CFR § 1.704-1". Internal Revenue Service. Legal Information Institute.
35. ^ 26 U.S.C. § 1361
36. ^ "26 CFR § 1.1361-1(c)(1)(B)". Internal Revenue Service. Legal Information Institute.
37. ^ "26 CFR § 1.1361-1(e)(3)(ii)". Internal Revenue Service. Legal Information Institute.
38. ^ "Determining an Individual's Tax Residency Status". Internal Revenue Service. December 10, 2021.
39. ^ "U.S. Tax Residency – Green Card Test". Internal Revenue Service. October 22, 2021.
40. ^ "Substantial Presence Test". Internal Revenue Service. October 27, 2021.
41. ^ "Closer Connection Exception to the Substantial Presence Test". Internal Revenue Service. December 7, 2021.
42. ^ "Sturm v. Harb Development, 298 Conn. 124, 2 A.3d 859 (2010)". Google Scholar. Retrieved October 9, 2019.
43. ^ Parsons, James (February 1, 2019). "Here Are the Benefits of Multiple LLCs or Corporations for Your Businesses". Entrepreneur.
44. ^ Brown, Robert L.; Gutterman, Alan S. (2005). Emerging Companies Guide: A Resource for Professionals and Entrepreneurs. American Bar Association. p. 68. ISBN 1590314662.
45. ^ Auerbach, Alan J.; Hines, Jr., James R.; Slemrod, Joel (2007). Taxing Corporate Income in the 21st Century. Cambridge University Press. p. 240. ISBN 978-1139464512.
46. ^ For example, HMRC in the United Kingdom, "HMRC Tax Manuals, DT19853A". Gov.UK. Government of the United Kingdom. May 25, 2017.
47. ^ Badger, Emily (April 30, 2018). "Anonymous Owner, L.L.C.: Why It Has Become So Easy to Hide in the Housing Market". The New York Times.
48. ^ a b Watson, Libby (April 6, 2016). "Why are there so many anonymous companies in Delaware?". Sunlight Foundation.