Transcript:
Ira Gubernick:
In this video we're discussing limited liability companies. An emerging company should seriously consider forming itself as a limited liability company, also known as an LLC. The key features of an LLC are that its owners, who are called members, are not personally liable for the debts of the LLC.
The LLC may elect to be treated as a partnership for federal tax purposes. This avoids a double taxation that is found with corporations, and allows the pass through of losses to business owners. Losses are very common with start with startup companies.
Its governing document is called an operating agreement, also known as an LLC agreement. It basically acts as a contract between the members. An LLC is a very efficient entity to use for fund raising rounds, and it allows you to issue equity in the form of profits interest, similar to stock options, to employees.
While it's true that certain investors will only invest in corporations, that's not normally the case with Angel Investors and your initial funding. If you need to convert from an LLC to a corporation in the future this is easily accomplished. If you have any questions or would like to learn more about LLCs and other issues facing startups and emerging growth companies, please visit us at cozen.com/copilot.
