Limited Liability

A limited liability is a commercial structure created to make a profit. The partners join forces, work together and share the income that remains after all costs and taxes are paid.

Limited Liability company members

The persons who set up the limited liability company (LLC), at the time of opening are called its founders, and further - participants. These can be citizens, as well as legal entities of any form of ownership. A ban on participation is established only for state and municipal bodies.

Participants have the right to manage the affairs of the company and receive part of the profits earned. They also acquire certain responsibilities, such as making their contribution to the share capital in time and keeping trade secrets. A participant who does not fulfill his or her duties, or who damages the business, can be excluded from the company by a court.

Maximum number of members is defined by law in each state. Key issues are decided jointly by voting. The company can also be organized by one person, then all decisions are made by him alone. There is one rule - an organization, which itself was formed by only one person, cannot act as a sole founder.

The composition of the company's participants may change over time. The owner has the right to sell or give his share in the business partly or fully. In addition, he may withdraw from the limited liability company, if such a right is enshrined in the charter. In this case, the share is transferred to the company, and the former participant in return receives a proportional part of the company's property. The other participants are obliged to distribute this share among themselves or sell it. If this is not done within a year, the share has to be redeemed.

Authorized capital of Limited Liability

All participants in a company must make an initial contribution to the company's assets. The initial capital ensures the operation of the company in the first phase, and also serves as a guarantee for the creditors. The law defines the minimum amount of capital.

For some spheres of business capital is set at a higher amount. The minimum capital must be made only in money, and anything higher can be made in property or supplemented by any amount of money.

Most limited liability companies open with a minimum capital. Often this is enough, but sometimes it has to be increased, and there are many reasons for this. For example, the requirement of investors, the need to obtain a license or the desire to demonstrate their solvency. After all, the higher the charter capital, the more reliable the company looks in the eyes of potential contractors, which means that it has more opportunities for cooperation. Despite the fact that the share capital is an insurance policy for creditors, it does not have to lie as a dead weight on a bank account. These funds can be used for the ongoing operation of the company. 

Shares of Limited Liability capital

The share capital is divided into shares as agreed upon between the founders, or shareholders. For example, if two have made equal contributions in money, the share in the capital of each of them will be 1/2 or 50%. The size of shares may be different, there are no restrictions established by law. For example, one businessman may own 90% of the company, and the other two - 5%.

Each participant must pay his share of the charter capital independently, it is impossible to release him from this obligation. Contribution must be made no later than four months from the date of registration of the limited liability company, or earlier, if it is stipulated in the charter. If you do not pay up on the due date, your share will be handed over to the company for sale or distribution.

Management of the Limited Liability company

The limited liability has a rather simple management system. The supreme body is the general meeting of participants (GMS). It is at him to decide key issues. Votes are counted in proportion to voting shares in the authorized capital, but this rule can be changed. For example, it can be established that each participant has one vote regardless of the size of his share. To make this provision work, it must be written in the charter. On some issues, participants must decide unanimously. For example, it is necessary to vote for the sale or distribution of the company's share, for liquidation or reorganization. For other issues, 2/3 of the votes or a simple majority is needed.

In most cases, the organization is managed by the director, who is chosen by the participants. He can be either one of the owners, or an outsourced employee. In addition to him, it is possible to provide a collegial executive body - the Directorate or the Board. How to distribute governing powers, the founders decide independently. In addition, a limited liability company can organize a Board of Directors for management, but this is not common.

Articles of Association of Limited Liability company

The charter is the founding document of the company, on the basis of which it conducts business activities. The charter enshrines basic information about the company:

• name;
• location;
• the size of the charter;
• information on the governing bodies;
• rights and obligations of the participants;
• procedure for transfer of shares;
• rules of storage of documents;
• order of informing participants on activity of a society.

There are many dispositive norms in the formation of the charter. They will apply only if they are included in the document. If such provisions are not mentioned, they either will not work at all or will be applied as it is prescribed in the law. In particular, the dispositive norms of the charter include:

• right of a participant to withdraw from the limited liability company;
• prohibition on sale of a share to third persons;
• rules on pre-emptive purchase of shares;
• transfer of a share to an heir only with the consent of other participants.

It is possible to establish in the charter and its own procedure for the distribution of profits. By default, this is in proportion to the shares, but other principles of division are allowed. You can provide for additional duties and rights for all participants or only for some of them. In addition, the charter may contain special rules governing the rules of major transactions, the order of the general meeting and even the term for which the company is established.

The responsibility of the Limited Liability company and its participants

Now let's go back to the beginning and recall what a limited liability company is. Let's repeat that the deciphering of this abbreviation is a limited liability company. It is a commercial organization that engages in business and bears the risks associated with it. When the business is successful, all is well: the company makes a profit and its owners receive dividends. But it can also happen that business does not go as expected. For example, borrowed funds are attracted and liabilities are accumulated which there is nothing to pay. As a result, contracts with partners are not fulfilled, tax debts grow, and the company faces bankruptcy and liquidation.

What risks does the founder of a limited liability company bear? It is understood that the participant should not be liable for the obligations of his organization, that is, to pay its debts. This means that he cannot lose more than he invested in the business. However, there is also such a concept as subsidiary liability. Its essence is that the owner of the share can still be brought to account for the debts of the limited liability company. But only if it is proved that his deliberate actions have led to the bankruptcy of the company. If no gray schemes are used and no illegal operations are carried out, then the risk of bringing the participants to subsidiary liability is low.