LLC Formation For Property Investment Essay.

Benefits of Limited Liability Company (LLC) for Property Investment

Question:

Discuss about the Business Structures of Liability Company.

John and Stephen Green are brothers and are in the process of forming a limited liability company structure which is meant to propel them to the next business in property market. The inheritance in received from their father’s estate is quite huge to make a limited company which is different from other business structures since it is a legal person on itself according to the law.

Limited Liability Company

Those interested in developing business in our country are commonly advised by lawyers and notaries in carrying out their activities through a legal person in order to limit their personal responsibility. In that sense, the common thing is to choose to constitute a Corporation, or as it is known Limited Company. The most important characteristic of these figures is that they limit the liability of members only to the amount of contributions made when subscribing the company's capital stock, excluding their personal assets, as they are autonomous and independent of relationships which are carried out by the companies, and therefore, are beyond

the reach of creditors and the obligations that the company could have in the development of its business and business activities.

Structure

The main differences between the Limited Company and the other business structures are mainly in the issue of directors and the representation of social capital⁴. In that sense, in the Corporation, the governing body is made up of a Board of Directors, establishing the legal obligation of at least a chairman, Secretary and Treasurer, who may be different from the partners³. In addition, the existence of a monitoring body known as the fiscal is necessary. This is the most complex form of association offered by our legal system.

As regards the representation of the share capital, in the Corporation this is constituted by shares, which constitute an aliquot portion of the same, while in the Limited Liability Company, the share capital is represented by quotas, which do not can be transferred by endorsement as if actions can be⁵ . Another difference is that since Limited Liability Companies are more closed than Corporations, there are restrictions on the transferability of quotas, specifically because the

prior and express consent of the other quota holders is required. have a pre-emptive right for their acquisition.

Shares and share ownership
In this business structure, as in all corporations, the share capital is represented in shares that are distributed among the shareholders according to their contribution to the capital stock. These shares, which by their nature are freely transmissible, may be issued in different classes, each class granting rights other than its holders, such as non-voting shares, preferential dividends, etc.

In the Company, the ownership of the shares is an aspect that is not public; That is, unless the company authorizes it or is done by judicial order or the law, no one can have access to the identity of the shareholders. In the limited liability company, when a transfer of shares is made, it does not need to be registered in the public registers, but will only be recorded in the Stock Registration Book of the company, which constitutes a private record. The ownership of the shares of the company is public information, therefore the transfer of shares is formalized in a public deed and Public Registers are registered in the item corresponding to the share capital.

Difference between LLC and other Business Structures

Formation of Capital and Formation of a company under the new companies Act

Under the companys formation Act of 2011, companies formed will adhere to all rules and regulations governing its formation.

 Authorized. Fixed amount that determines the maximum cap of the company.
 Subscribed. The part of the authorized capital that the shareholders commit to pay in installments, maximum one (1) year, and at the moment of its constitution must be at least half of the authorized.
    Paid out. The part of the subscribed capital that the shareholders have actually paid and which has entered the company⁵.
Formation of Capital:

    The capital is divided into shares or shares of equal value.
    The capital must be fully paid at the time of incorporation.
    The transfer of quotas implies a statutory reform.
    In case of death of a partner, he will continue with his heirs, unless otherwise stipulated.
    The representation is at the head of all the partners, unless they delegate it to a third party.

Responsibility of Members: only respond up to the amount of their contributions; however, in the articles of association, a greater responsibility (nature, amount, duration and type of additional responsibility) may be stipulated for all or some of the partners, without incurring

indefinite or unlimited liability. The exception in the liability in limited companies is solidarity with respect to the labour and tax obligations borne by the company, for which reason the joint assets of each partner will be jointly and severally liable.
The directory
Being a company designed for an organization with a reduced number of partners, the sole proprietorship and partnership does not foresee the existence of a directory in its internal structure. In this way, the limited liability company has only two bodies, the General Meeting of Members and Management. In the case of the company, it is planned to have a board of directors like all public limited companies. However, in view of the fact that its shareholder number is often reduced, the General Companies Law establishes the possibility that the articles of incorporation or bylaws indicate that the company will not have a board of directors, in which case the powers of this body will be assumed by the General Manager.

PART 2

Report to Supervising Partner

Brothers John and Stephen should put into use the inherited money by forming a company that will be used as a vehicle to purchase land and develop some units. John and Stephen should form a company as the best business structure due to the following reasons⁷.

Formation of Capital under the Companies Act of 2011

Why Prefer to Establish a Company

When we are faced with the dilemma of deciding what type of business structure  it is convenient  to analyse what a company is able to do  vis a vis the other business structures. Undoubtedly the emergence of the Limited liability company, coincides with the birth of capitalism, which prompted the creation of commercial enterprises for the foundation and operation of which require major capital and limiting the liability of partners to the amount of their contributions⁸.

Without doubt the development of capitalism is achieved through the Limited liability company, which was constituted in its most suitable instrument, especially for allowing the easy

transmission of shares representing social capital to third parties, as opposed to the transmission of other type of securities representing the social share of the partner in the capital of a company as is the case in partnerships⁸ .

It is without a doubt the limited liability company is the ideal legal instrument of capitalism; So it is that such economic system would hardly be understood not to have such a legal instrument.A first reason to opt for a Limited liability company and not another, is that the Limited liability company has a legal structure that makes it especially suitable to carry out all types of businesses from small to large, the latter are normally outside the Field of action of individuals or societies of a personality type, who lack the capital to undertake such projects or who do not consider prudent to venture into a company that can fail and lead to ruin⁹ .Leaving aside the purely economic considerations, we will focus on three purely legal aspects to show brothers John and Stephen why they should opt for a Limited liability company.

Capital divided in shares.

That the share capital of Limited liability company’s be represented by shares, eminently negotiable documents, allows shareholders to freely dispose of them and receive in exchange as price the value of the stock at that time. In case one of the brothers want to leave the company, it is easy to do so by selling of his shares ⁹.

It also allows the entry of new members either because they acquire shares transferred by the previous owners or because they subscribe new ones that are issued as a consequence of subsequent capital increases, this makes the person of the partner has a secondary importance unlike the partnerships , Since what really matters in the Limited liability company is the Social Capital.

Responsibility of Members in LLC

Limited responsibility of the partners.

The brothers John and Stephen only respond to the payment of their contributions that they make at the time of subscribing their shares¹⁰. This note allows the partners to limit the risk they incur when entering the company to the amount of their contributions and that their equity is exempt from chance. It is very important to create an inherent wealth for the limited liability company,

independent of its partners. The formation of social assets can ensure and protect the rights of shareholders and creditors, they must be sure that the assets of the company and of its shareholders can not be confused, otherwise it would affect the security of creditors And shareholders .Having a separate, well-controlled and monitored heritage is often more important than the liability of partners based on their personal assets¹⁰. The main advantage is the limitation of the responsibility of the partners, due to the debts contracted by the company will only respond with what is contributed as social capital and not with their personal assets. This is one of the reasons why many people prefer to set up as a limited company to avoid losing everything if the project does not go forward.

Third parties as administrators.

The administrators of the Limited liability company may be persons outside the partners, which allows, on the one hand, to organize the administration with technicians specialized in social activities and who are outside the particular interests of the partners and therefore dedicate themselves to the achievement Of the social ends and therefore will prevail the social interests on the particular interests of the partners. John and Stephen can choose to employ other people who will take up the management of the company.

According to the Law of Capital Companies, the limited company is characterized by one or more partners, who may be natural or legal persons (other companies), whose capital is formed by the contributions of the partners. There is a minimum capital that is required in order to start a limited liability company.

The share capital is constituted by social shares (the equivalent of shares in the Limited liability company) that are transferable, meaning that if a partner wishes not to continue with the project can sell its shares to other partners or a third party.

Disadvantages include that the company o entails certain expenses. In the sale of shares, limitations can be established for their acquisition by third parties. This is at the same time an advantage for partners who do not want a strange person to enter the company, proceeding to preferential purchase of the shares of the partner who wishes to leave the company.

The Directory in LLC

Recommendation

When choosing a business structure, it is important to note the pros and cons of any structure in relation to other structures. In this case, John and Stephen have choosen a limited liability company due to its advantages of acting as a legal person¹¹. A company has its own assets and liabilities and can be sued like any other legal person. It is the best business structure if the brothers want an autonomous and independent business. It is important to note that although a company is designed for the future and after the $3 million inheritance, they will bequith the company to their kins.

Explanation for Recommendation

A limited liability company has so many advantages unlike other business structures like sole proprietorship and partnerships. In a Limited Liability Company one is  more likely to get financing loans than when self-employed¹². It is a relative advantage because in practice it is equally difficult, and it is usual for entities to require the creation of guarantees or personal guarantees to members, . The partner also considers his / her personal wealth for a debt of the company. It can be constituted by a single partner, because there is not a minimum of partners to constitute this type of society.

References

Clayton, Patricia, Forming A Limited Company (Kogan Page, 2008)

Dignam, Alan J and John P Lowry, Company Law  (Oxford University Press, 2016)

Feld, Brad and Amy Batchelor, Startup Life (J. Wiley & Sons, 2013)

Gallos, Joan V, Business Leadership (John Wiley & Sons, 2014)

Gopal, Namita, Business Communication (New Age International, 2009)

Hannigan, Brenda M, Company Law (Oxford University Press, 2016)

Jasper, Margaret C, How To Form A Limited Liability Company (Oceana, 2007)

Mancuso, Anthony, Form Your Own Limited Liability Company (Ingram Pub Services, 2017)

Martin, Alson R, Limited Liability Company & Partnership Answer Book (Aspen Publishers, 2010)

Reichheld, Frederick F and Rob Markey, The Ultimate Question 2.0 (Harvard Business Press, 2011)

Salaman, Graeme, Understanding Business (Routledge in association with the Open University, 2001)

Reichheld, Frederick F and Rob Markey, The Ultimate Question 2.0 (Harvard Business Press, 2011)

Salaman, Graeme, Understanding Business (Routledge in association with the Open University, 2001)

Shenkman, Martin M, Samuel Weiner and Ivan Taback, Starting A Limited Liability Company (Wiley, 2003)

Shepherd, Chris and Ann Ridley, Company Law (Taylor and Francis, 2015)

Tesmer, Jack A, Your Perfect Business Match (Career Press, 2002)

[1] Clayton, Patricia, Forming A Limited Company (Kogan Page, 2008)

 ²Dignam, Alan J and John P Lowry, Company Law (Oxford University Press, 2016)

[3] Feld, Brad and Amy Batchelor, Startup Life (J. Wiley & Sons, 2013)

⁴Gallos, Joan V, Business Leadership (John Wiley & Sons, 2014)

⁵Gopal, Namita, Business Communication (New Age International, 2009)

⁵Gopal, Namita, Business Communication (New Age International, 2009)

⁶Hannigan, Brenda M, Company Law (Oxford University Press, 2016)

[5] Hannigan, Brenda M, Company Law (Oxford University Press, 2016)

[6] Mancuso, Anthony, Form Your Own Limited Liability Company (Ingram Pub Services, 2017)

 ⁷Martin, Alson R, Limited Liability Company & Partnership Answer Book (Aspen Publishers, 2010)

[7] Martin, Alson R, Limited Liability Company & Partnership Answer Book (Aspen Publishers, 2010)

 ⁸Reichheld, Frederick F and Rob Markey, The Ultimate Question 2.0 (Harvard Business Press, 2011)

[8] Reichheld, Frederick F and Rob Markey, The Ultimate Question 2.0 (Harvard Business Press, 2011)

⁹Salaman, Graeme, Understanding Business (Routledge in association with the Open University, 2001)

[9] Shenkman, Martin M, Samuel Weiner and Ivan Taback, Starting A Limited Liability Company (Wiley, 2003)

[10] Shepherd, Chris and Ann Ridley, Company Law (Taylor and Francis, 2015)

[11] Tesmer, Jack A, Your Perfect Business Match (Career Press, 2002)