Limited Liability Companies in Utah

A limited liability company (LLC) is a business entity commonly used for small- and medium-sized businesses in Utah. This page is intended to provide general information about the structure and formation of limited liability companies. For advice and assistance relating to small business legal issues, formal consultation with an attorney is strongly advised.

Utah LLCs - The Basics

A limited liability company (or LLC) is a hybrid business structure, combining many of the elements and benefits of both a corporation and a partnership. An LLC is designed to give its members the benefits of limited liability enjoyed by shareholders in a corporation along with the flow-through tax benefits of a partnership.

The initial formation of an LLC is accomplished by filing a “certificate of organization” with the Utah Division of Corporations. An operating agreement is not required for the initial creation of an LLC, but having a well-crafted operating agreement can be critical to the long-term success of the business. Without an adequate operating agreement, disputes between members are more likely to arise over responsibilities and duties of each member.

Owners in a LLC are called members. Members may be individuals, companies, another LLC, or foreign entities. In order to qualify as a member of the LLC, they must contribute assets or services to the capital of the company.

A limited liability company is an entity separate from its members and may be created to perform almost any lawful purpose. There are only a few types of businesses that cannot be established as an LLC, such as banks and insurance companies.

The name of a business established as an LLC must contain the words “limited liability company” or “limited company,” or an abbreviation thereof (LLC or LC). Unlike an S-corporation, there is no maximum number of entities who can be members of a single LLC. Utah law also allows creation of an LLC with only one member. An LLC that is created with only one member is generally treated the same as a sole proprietorship for taxation purposes.

Benefits of Operating as an LLC

There are many benefits to forming a small business as an LLC in Utah. But an LLC may not always be best-suited to a particular business model. Consultation with an attorney is advised to assist in determining whether an LLC is the best business entity to use.

Tax Benefits of an LLC

• Members of the LLC may elect to be taxed directly (eliminating the double-taxation that can occur under a C-corporation)
• Profits of the company pass through members tax returns
• The LLC does not pay taxes, but merely files an informational return

Flexibility and Other Benefits of an LLC

• Members have significant freedom in determining the internal operations of the business through the creation of an operating agreement
• Profits and losses can be flexibly allocated among members of the company, and are not required to be allocated strictly according to percentage ownership
• Members of the company cannot be held personally liable for the company’s obligations
• Members have flexibility in establishing a management structure that includes direct management by members or the employment of nonmember managers
• The operating agreement can establish rules or restrictions for transfers of membership
• The operating agreement can create a known process for termination of membership or dissolution of the LLC
• A member may transfer an interest in the LLC that allows the assignee to participate in profits or losses of the LLC, without transferring the right to participate in management of the LLC

Comparison of LLC with Other Business Entities

• An LLC typically requires less formal documentation and accounting than most corporations
• Like a corporation, creditors may still be able to “pierce the corporate veil” of an LLC in cases of fraud, inadequate capitalization at inception, or commingling funds
• Transfer of membership in an LLC is governed by the operating agreement and is not as freely transferable as would be shares of stock in a corporation
• Partners in a partnerships and individuals operating as a sole proprietorship can be personally liable for the debts and obligations of the business
• Unlike a partnership or sole proprietorship, the assets of an LLC are separate from the personal assets of the members

Finding a Utah Attorney for Small Businesses

The best way to start a small business in Utah is to build on a solid foundation. Establishing an LLC with a sound operating agreement is an important part of establishing that foundation. Contact us today to see how the right attorney can make a difference for you.