A limited liability company (LLC) is a legal formation for businesses to that determines the owners, members and legal responsibilities of companies. Business owners organize their businesses as LLCs to protect themselves and their personal possessions from the company’s legal debts and obligations.
The organizer is the individual or business that forms the LLC. A member is an individual or business that owns the LLC. Iowa law requires that you must have at least one owner (called a member) before a LLC can begin any business activity. The organizer does not have to be one of the members.
When you form a LLC, you must submit a name for the company. The state law requires that the name must contain one of the following words or abbreviations:
- Limited liability company
- Limited company
You can abbreviate “limited” as “Ltd.”. You can also shorten “company” to “Co.”.
A LLC must have an agent for service of process. The agent is responsible for receiving and handling legal documents and notice about lawsuits or legal claims involving the LLC. The agent for a LLC must be an Iowa resident and have the same business office address as the company.
To form an LLC in Iowa, you must complete a certificate of organization. Iowa does not provide an application for the certificate. You can create one on your own or hire an attorney to write your certificate of organization for you.
The certificate must state the following information:
- The name of the LLC
- The street address of the company’s office
- The name and business office street address of the person who is responsible for receiving notice and court documents (service of process) about lawsuits involving the LLC
The LLC begins the moment you file the signed certificate of organization with the secretary of state, unless you state on the certificate that you want to delay the date your business becomes a LLC.
Limited liability companies enjoy a tax benefit called pass-through taxation, which allows LLCs to pass their obligation to pay federal income taxes to the individual owners. Therefore, the LLC does not pay income taxes. LLCs also do not have a pay a separate Iowa tax or fee for doing business in the state.
State laws treat a LLC as separate from its owners. LLCs are their own legal individual, and can sue someone or have someone sue them. The LLC protects the owners because the debts, obligations, and legal responsibilities of the company are only against the company. The owners are not personally responsible, and their personal possessions are not in danger just because they are the owners of the LLC.
Iowa law also gives a LLC protection from the personal debts and obligation of any of its members. If member’s personal creditor sues to get money or property owed to him, the creditor cannot force the LLC to close the business to receive the member’s share to pay the debt.
Generally, state laws give s protection from its members’ personal debts and obligation. However, Iowa law allows an LLC member’s creditor to get an order from the court for the member to pay the debt. The court order, called a charging order, may affect the finances and functioning of the member’s LLC. A charging order requires the LLC to pay the member’s income or profit directly to the creditor to satisfy the personal debt.
The LLC and other members may have to wait for their money because the member’s creditor must get his money first. The Iowa court may also assign someone to supervise the profits or income of the debtor member’s share.
Additionally, the member’s creditor can go to court have a judge sell the member’s interest in the LLC. The creditor receives the money from sale or become the new owner of the interest. As the new owner of the interest, the creditor to not have any rights in running the business; however, the LLC must now deal with an owner it did not decide to have in the business.
If you are trying to form a LLC, then contact a local Iowa business lawyer today to help you form your LLC and understand your rights and obligations as an owner.