to a corporation that allows businesses and investors to limit their liability exposure in a particular business to the amount of their investment thereby protection the owners personal assets. The limited liability company is similar in many respects to a corporation. However, a limited liability company is more flexible in terms of the ownership structure, management structure, and flexibility for taxation. LLC's are often used by businesses, investors, or individuals who wish to engage in a particular enterprise and desire to limit their exposure to any potential liability. A LLC protects its members from personal liability from the debts, claims, and creditors of the LLC. The liabilities of the LLC may only be satisfied out of the assets of the LLC. For example, imagine an LLC that was organized to own and operate a restaurant. Let's say the LLC had assets (real estate, accounts receivables, and cash) in the amount of $250,000. Let's further assume that the two members (owners) of the LLC had personal assets (homes, retirement accounts, cash) exceeding $500,000. Now let's assume that a liability such as a personal injury claim arose against the restaurant and that the plaintiff obtained a judgment in the amount of $400,000. The plaintiff could only satisfy the judgment out of the $25,000 assets of the LLC; he could not satisfy the balance of his judgment out of the members' personal assets. This feature of the LLC--the limited liability feature--allows business owners or individuals to separate their business assets from their personal assets and limit their liability to their capital investment
Many people who decide to form an LLC already have an existing business that has been operated for several years as a partnership or sole proprietorship. Often owners of these businesses learn about LLCs and decide that they want to take advantage of the liability protection offered by the LLC.
Any partnership or sole proprietorship may easily convert into an LLC. In the case of an existing business converting to an LLC, the process is essentially the same. The owner of the sole proprietorship or the partners of the partnership form an LLC and begin operating their business under the new entity. As with all LLCs, it is important to transfer the assets that will be used in conjunction with the business to the LLC. For example, if the business is a lawn and landscape service the sole proprietorship or partnership should transfer the assets (lawn mowers, etc.) to the newly formed LLC. A simple bill of sale can accomplish this.
Finally, it is important that the owners of the existing business which will convert into an LLC terminate the old partnership or sole proprietorship. In Michigan, this usually can be done at the local county clerks office.
In Michigan, there are two classes of LLCs: manager-managed LLC and member-managed LLC. The organizers of the LLC elect whether the LLC is to be a member-managed LLC or a manager-managed LLC in the articles of organization. A manager-managed LLC is an LLC whose daily business operations are managed by one or more managers who are elected by the members. This type of LLC may be used in situations where there are some silent investors or partners who contribute capital to the LLC but are not interested in the daily management of the LLC, or in situation where there are several members and it would be inefficient for each member to have a say in the daily management of the LLC. A member-managed LLC is an LLC whose daily business operations are managed by the members. The daily management of this LLC is handled by the members alone. In this case, each member has an equal say in the operation of the business unless the members agree otherwise (such an agreement would typically be outlined in an operating agreement). A member-managed LLC is usually selected in situations where there are a small number of members.