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managed and operated. Operating Agreements can be drafted in a manner that best suits the needs of the company and its members. 5. Advantages 1. Unless otherwise provided by law or in an operating agreement, the members and mangers of a LLC have limited liability. MCL 450.4501(4). 2. There is no entity level income tax on a LLC. The profits and losses of the partnership are passed through to the members. 3. LLCs have fewer statutory requirements than a corporation and are generally more flexible. 4. There are very few statutory
attorney should be retained to draft a complex operating agreement.
E. Corporations 1. A corporation is a statutory entity. Corporations are governed by the Michigan Business Corporation Act, MCL 450.1101 et seq . 2. Corporations must file Articles of Incorporation with LARA. MCL 450.1202 et seq . 3. A “C” corporation is subject to double income taxation. It is taxed at the entity level, and then the shareholders are taxed on dividends. 4. An “S” corporation passes through income and losses pro rata based on ownership . S corporations are generally not taxed at the entity level. S corporation status requires: 1. Election by all shareholders. 2. The filing of form 2553 with the Internal Revenue Service. 3. Only one class of stock. 4. A maximum of 100 shareholders. 5. Only certain individuals or entities may be shareholders. Shareholders may be individuals, certain trusts, and estates, and may not be partnerships, corporations, or non-resident aliens. 5. Directors and officers owe a fiduciary duty to the corporation. They must: (i) perform their duties in good faith, (ii) with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and (iii) in a
requirements concerning what must be contained in an Operating Agreement. Operating Agreements can be as simple or as complex as the members desire. However, Operating Agreements generally cover issues like management,
membership, income or loss allocations, cash and property distributions, mandatory and permissive capital contributions, dilution, and transferability of ownership, among others. 5. The Operating Agreement can limit or eliminate the duties members owe to each other. 6. Disadvantages 1. In order to enjoy some of the
benefits of a LLC, the members must create a tailored operating agreement. A knowledgeable
ILN Real Estate Group – Buying and Selling Real Estate Series
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