Talk:Limited liability company

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Wiki Education Foundation-supported course assignment

This article was the subject of a Wiki Education Foundation-supported course assignment, between 19 October 2020 and 18 December 2020. Further details are available on the course page. Student editor(s): Dgansman.

Above undated message substituted from Template:Dashboard.wikiedu.org assignment by PrimeBOT (talk) 02:36, 17 January 2022 (UTC)

Limited liability and taxation

I think the article would benefit from a discussion of the policy reasons behind corporate taxation and whether limited liability without corporate income taxation is problematic. — Preceding unsigned comment added by Bookish982 (talk • contribs) 23:53, 3 November 2020 (UTC)

If you are referring to U.S. LLCs, that is because it is internally structured and governed like a partnership with limited liability, even if it only has one partner. For both LLCs and partnerships, the tax burden is passed onto its members (owners). So income taxes on LLCs are still paid, the only difference is who is paying the taxes. It should be noted that in the U.S., an LLC can elect to be treated as a corporation for tax purposes, but all that really does is shift the tax burden to the LLC instead of it being on the LLC's owners. Basically, it just changes who files the tax return. So the government gets their share of the money regardless. For smaller LLCs and for LLCs that are subsidiaries, it is often easier for the owners of the LLC to file. For larger LLCs that are not subsidiaries and have multiple members, the LLC may take on the burden of filing the taxes to make it easier for its members. That way an LLC can grow without having to change entity type. So the policy reason is that the government gets the money regardless, but they are flexible on how you file your taxes. TejanAusland (talk) 20:41, 14 July 2023 (UTC)

Confusion/conflation of tax residence and citizenship

This statement

In the United States, an S corporation has a limited number of stockholders, and all of them must be U.S. tax residents; an LLC may have an unlimited number of members, and there is no citizenship restriction.

needs editing for clarification by someone knowledgeable. Tax residence and citizenship are not equivalent. Barefoot through the chollas (talk) 15:38, 3 August 2021 (UTC)

I have added information about U.S. tax residency to the article. ~ Quacks Like a Duck (talk) 22:08, 30 December 2021 (UTC)

Challenging deletions (apparent vandalism) by 73.71.251.64 on 12 October 2021

I'm challenging this edit and this edit. These edits removed neutrally stated and properly sourced information that I had added to this article. The anonymous editor apparently has not read and does not understand the sources cited.

The edits removed two critical passages intended to explain the purpose of the Wyoming LLC statute as originally enacted. The first is this one:

"The Wyoming LLC statute was tailored by the Wyoming Legislature to exploit an important flaw in the Kintner regulations—all six factors were supposed to be of "equal significance". This part of the regulations implied that it might be possible to structure an entity with both limited liability and pass-through tax treatment by meticulously balancing the six factors against each other."

As the cited article points out, it is because of this feature that the Wyoming LLC was so quirky in comparison to later LLC statutes, because the drafters were trying to thread their way through such a tiny needle. The replacement text fails to mention the "equal significance" language and how the six factors were balanced against each other, which was the point of the Wyoming LLC statute. By deleting an adequate explanation for the state legislature's actions, the resulting text inappropriately implies in a strongly biased fashion that the Wyoming Legislature was acting in an irrational manner.

That nasty implication is directly contrary to the cited source. Since there is no good faith reading of the cited source that could support such an interpretation, the edit amounts to clear vandalism of the article.

The previous language correctly conveyed the implication of the cited article that the state of Wyoming was acting in a calculated manner to cleverly exploit a subtle loophole in federal tax regulations.

The anonymous editor seems to have a strong POV bias against the state of Wyoming. (And to be clear, I have no particular fondness for the state of Wyoming, which doesn't have much to commend it besides Yellowstone and Devils Tower; my concern is Wikipedia core policies like WP:NPOV.)

Also, the word "flaw" is NPOV because it correctly implies that as a result of the Wyoming LLC statute, the Kintner regulations were thereby failing to accomplish their intended purpose: to ensure that those businesspeople seeking the protection of limited liability would always have to bear the burden of double taxation (personal income and corporate income taxes). If the IRS had been able to come up with a bulletproof way of accomplishing that purpose, the LLC and LLP would not exist.

The second passage at issue is as follows: "For several years, other states were slow to adopt the LLC form because it was unclear if a Wyoming LLC could get away with being taxed as a partnership under the Kintner regulations."

The anonymous editor reverted my revert of their edit by claiming that 'get away with' is POV language, especially with the hindsight that LLCs were ruled legitimate."

The anonymous editor is exhibiting extreme bias by using the fact that LLCs were later ruled legitimate to retroactively treat them as always legitimate, and therefore, any language that doesn't imply their legitimacy then, now, and forever is POV.

Sorry. History doesn't work that way. Today, principled historians—especially at top-tier research universities—pound into their students that sound, neutral historiography requires historians to respect the actual perspective of historical actors at their moment in time, however ignorant and flawed, and to clearly and carefully distinguish between what we know people actually knew back then versus what we know now.

Which means it's improper to write history in a way that views history as a teleological process of continuous improvement, as if a particular outcome in the end was always the superior outcome and inevitable. That's known as Whig history. Writing that way is widely regarded as a sign of intellectual immaturity.

"Get away with" is NPOV because it accurately and neutrally summarizes the perspective of Americans during the 1970s and 1980s as they looked upon the Wyoming LLC experiment: can Wyoming get away with doing that? If it was so slam-dunk obvious that the Wyoming LLC statute was legitimate under federal law all along, it would not have taken 10 years for other states to follow Wyoming's example. It was only when they saw that yes, the IRS really will let people get away with this, that other states began to tentatively follow in Wyoming's footsteps.

In 1977, American businesspeople were struggling with stagflation and shortages; the national mood was still depressed in the aftermath of the Vietnam War (and the resulting waves of refugees) and the Watergate scandal. And then the lawyers insisted on torturing businesspeople with arcane distinctions between sole proprietorships, partnerships, and corporations.

So why bother to create yet another kind of legal entity with its own bewildering terminology and rules, as a weird hybrid of partnerships and corporations? Answering that question in a clear and neutral fashion was the point of the text that the anonymous editor took out. --Coolcaesar (talk) 17:04, 1 November 2021 (UTC)

It wasn't vandalism, period. There is the possibility (for either of us) to be mistaken without acting in bad faith.

Your insinuation of a bias against Wyoming is odd, since "could get away with" strongly implies that the state knowingly undertook to defy the tax laws. The LLC structure was novel, but (as the prior wording admits) guided by the regulations as they stood. Although the Maynard source does use the words "equal significance" it does not say that all six factors were equally significant, and other sources on the subject (e.g. [1][2][3]) consistently state that equal significance was limited to four of the factors. Hence the structure of the Wyoming law: two characteristics shared between corporations and partnerships, and two that were not, placing an LLC at the threshold of being taxed as a corporation.

As for "why bother": not because "lawyers insisted on torturing businesspeople" or any of those other circumstances, but because particular businesspeople in the oil exploration business wanted the law, so that they would have limited liability in the US comparable to what they had elsewhere.

I've updated the wording to restore the mention of equal significance in the regulations, but without referring to this as a "flaw." 73.71.251.64 (talk) 19:29, 2 November 2021 (UTC)

I can't follow this dispute indefinitely. The question of why Wyoming bothered to create the LLC can be answered, and has been answered, without making it out to be some kind of caper. The IRS issued regulations and Wyoming made a law around those regulations for someone's benefit. The IRS might have contested the arrangement in court (as it did with checkbook IRAs, for example) but it did not. 73.71.251.64 (talk) 13:29, 4 November 2021 (UTC)

Management of an LLC?

I am missing topics about the management of LLCs, terms like "governor" or "board of governors". The disambiguation page about the term "Governor" does not even contain a link to the LLC page. Unfortunately I don't know enough about that topic to add this information myself... FBitterlich (talk) 10:25, 25 July 2022 (UTC)

For a U.S. Limited Liability Company (LLC), it is internally governed like a partnership in the case of a multi-member LLC. It does not issue stock and its members own percentages of the company as specified in its Operating Agreement. This is similar to how a U.K. Limited Liability Partnership (LLP) is governed. For a single-member LLC, it is still structured like a partnership, except it is a partnership with one partner.

U.S. LLCs are managed by one or more Managers appointed by its Members. Owners of the company are Members. The LLC is governed according to the rules specified in the Operating Agreement.

U.S. LLCs do not have shareholders, do not issue stock, do not have directors, do not have a board of directors, do not have governors, and do not have a board of governors.

Unlike a corporation or private limited company, a U.S. LLC has no layer between the owners (Members) and the management (Managers), unless it wants to add one in the Operating Agreement. It works similar to a partnership in this regard.

For a U.K. Limited Company (Ltd.), often casually referred to as a limited liability company (lowercase), it is structured similar to a U.S. Corporation, with shareholders which elect a Board of Directors which elects or appoints officers to run the company.

U.S. LLCs are basically partnerships with limited liability, while U.K. Limited Companies are private limited companies (corporations with limited liability). TejanAusland (talk) 20:05, 14 July 2023 (UTC)

Type of limited liability company

[1] Public limited companies. [2] Private limited companies 105.112.182.66 (talk) 21:02, 26 February 2023 (UTC)

There are also U.S. style Limited Liability Companies (LLCs) which are structured similar to a Limited Liability Partnership (LLP), except that an LLC can have one member, whereas an LLP requires two. A U.S. style LLC is not the same as a private limited company or a public limited company. So there are actually three types. TejanAusland (talk) 08:08, 12 September 2023 (UTC)

U.S. LLC is not similar to a U.K. Private Limited Company

There is a lot of confusion and misinformation around this topic since both a U.K. Limited Company (Ltd.) and a U.S. Limited Liability Company (LLC) are often casually referred to as "limited liability companies" (lowercase). But they are not actually the same thing. A U.S. LLC is actually closer in structure to a U.K. Limited Liability Partnership (LLP) than it is to a U.K. Private Limited Company (Ltd.). A U.K. Private Limited Company (Ltd.) is closer to a U.S. Corporation (Inc., Corp., Ltd.) than it is to a U.S. LLC.

The reason why I say this is because a U.S. multi-member LLC is structured like a partnership, and a single member LLC is structured like a sole proprietorship (or more accurately, a partnership with one partner). This is radically different than a corporation or private limited company which requires shareholders, a board of directors, etc. A U.S. LLC has none of that.

So to claim that a U.S. LLC that is internally structured like a partnership is the same thing as a private limited company that has shareholders and a board of directors is misleading a best and inaccurate at most.

If you want to verify if this is true, compare the structure of a U.S. LLC with a U.K. LLP, and compare the structure of a U.S. corporation with a U.K. Private Limited Company, and you will see the disparity. TejanAusland (talk) 19:38, 14 July 2023 (UTC)