The Origins Behind the Limited Liability Company

This Article documents the story behind the complex origins of the Limited Liability Company (LLC). Using unpublished letters, memoranda, and other documents, this Article shows the inside story of the interest group activity responsible for inventing the first LLC statute in 1977, the initial battle fought by the early LLC proponents to secure partnership classification from the Internal Revenue Service, and the organized efforts of LLC proponents in the 1990s lobbying the IRS for more favorable partnership classification rules, while encouraging the states to enact statutes. Professor Hamill offers a unique perspective on the story of the LLC through her experience as an attorney with the Chief Counsel\u27s Office of the Internal Revenue Service (from 1990-1994) during many of the events described in the Article. This Article also offers insights into the origins of the LLC by analyzing how certain business and tax dynamics came together, resulting in the LLC entering into the American landscape. Focusing on the historical evolution of corporations, this Article traces the LLC\u27s earliest origins to the first few decades of the nineteenth century when state law power over the incorporation process cemented. Focusing on the twentieth century, this Article identifies first the modern income tax of 1913 as the LLC\u27s modern origin, and then explores how the effective income tax burden of doing business in the corporate versus partnership forms and how the development of the markets for investments in independent oil and gas drilling ventures greatly affected the timing of the LLC\u27s invention in the 1970s. An explanation of the LLC\u27s rise to prominence in the 1990s concludes this Article

The Taxation of Domestic Limited Liability Companies and Limited Partnerships: A Case for Eliminating the Partnership Classification Regulations

Part II of this Article traces the historical evolution of the entity classification area. Part III then examines how the entity classification regulations have been applied to limited partnerships. Part IV then examines how the classification regulations apply to LLCs, focusing on the guidelines set out in Revenue Procedure 95-10. Finally, in Part V, the Article proposes that the tax policymakers eliminate the use of the partnership classification regulations when determining the taxation of domestic LLCs and limited partnerships

The Limited Liability Company: A Catalyst Exposing the Corporate Integration Question

The rise of the domestic limited liability company (LLC) from obscurity to its present position as a viable, mainstream alternative to the corporation or partnership was met with enormous enthusiasm by the business community and the practicing bar. First introduced by the State of Wyoming in 1977 and recognized by the Internal Revenue Service (IRS) as a partnership for federal income tax purposes in 1988, the LLC offers for the first time a domestic entity that combines the tax advantages of a partnership with limited liability protection for all members, an advantage commonly associated with corporations. The advantages of the partnership tax provisions include one level of tax at the owner level, flexible rules to allocate profits and losses among the owners, and the opportunity for owners to deduct losses or receive distributions attributable to the partnership\u27s liabilities. By contrast, corporations are taxed at both the entity and the shareholder level, unless they elect subchapter S, which taxes closely held corporations only once - at the owner level - under a set of rules far less favorable and flexible than the partnership provisions. However, unlike shareholders of corporations who bear no statutory personal liability for the corporation\u27s debts, under the partnership statutes, at least one partner must bear personal liability for the debts and obligations of the partnership. By combining the best of both worlds, partnership taxation and limited liability, the LLC revolution can be characterized as tax driven. Nevertheless, some commentators believe that it is the LLC\u27s superior business provisions that will cause LLCs to continue to rise in popularity. Although the LLC\u27s business provisions may be characteristic of either partnerships or corporations, in toto they produce a truly unique and new business entity that cannot be aligned categorically with either of the more traditional forms. For example, the statutory provisions addressing the management and control of the LLC generally vest agency authority and governance rights in all members, as if they were partners in a general partnership. However, LLC members, unlike general partners, can adopt a management structure resembling those of corporations or limited partnerships by appointing managers. The LLC\u27s managers, holding the power to make important policy decisions and to bind the LLC in day-to-day business transactions, take on the roles held both by general partners of limited partnerships and by corporate directors and officers