How does a flow-through LLC own assets? A Limited Liability Company (LLC) is a business under US law with the following characteristics: Establishes a "corporate veil" of limited liability, such that creditors or lawsuits can only go after the company's assets, and not personal assets of the owner(s). Requires much less in the way of formalities than a corporation. Treated as a flow-through entity by default, meaning that the income of the company is treated directly as the income of the owner(s), rather than being held by the company and paid out as salary or dividends. (Not all LLCs operate as flow-through entities, but this question is only about those that do.) At first glance, it appears that the first and third points above are in conflict with one another: if all revenue generated by the company flows directly to the owner(s) rather than being retained by the company itself, then the company has no money of its own with which to purchase company assets! Obviously this has to be an overly simplistic understanding, but I'm having trouble finding a plain-English description of how it really works. So my question is, what are the principles by which a flow-through LLC segregates company money and assets from flow-through payments to the owner(s)?
My understanding is that the "flow-through" treatment is specifically a tax law concept. The LLC has its own income, which it can use to pay expenses or acquire assets or for whatever other purpose, and such assets become the property of the LLC. It's just that when it comes time to pay taxes, the LLC's net income is taxed as income to the owner. But that does not mean that the LLC's income is treated the same as the owner's income in all other legal contexts.
In general, you cannot neither change contracts nor restrict/nullify other people's rights by your acts alone. The people who hired you personally have a contract with you, not with your LLC. So, if someone has a claim against you, then their claim should not be contingent of your LLC going bankrupt or not; they have a right to have their damages restored by you (who was the entity they hired). Otherwise, fraud/liability delinquency would be trivial: get debts on your name and, when the things get difficult, create a shell LLC and let it go bankrupt.
Although the word typically refers to a specific type of business entity, &quot;corporation&quot; simply means a group (or &quot;body&quot;) of people or other entities that are collectively endowed with a status that treats them as though they were a single legal person that can exist indefinitely. In common-law jurisdictions like the U.K., this includes municipal corporations, which generally consist of the people living within the corporation's territorial boundaries, exercising their collective will through their elected representatives, and assigned certain rights and obligations as a result of their collective status. Although the same word is used, it would generally not be the case that a municipal corporation would be governed by the same laws as business corporations or trade guilds, which are also sometimes referred to as corporations. Barclay's and the City of London are both corporations, and therefore are treated as entities capable of making their own decisions, with rules allowing for their decision-making bodies to keep them &quot;alive&quot; in perpetuity. But there are also many obvious differences. The City of London does not have shareholders in the same sense that Barclays would, nor is it obligated to register its existence or undertake most of the other responsibilities facing a corporate entity. Wikipedia has more detail broken down by jurisdiction.
The key difference is that Best Buy is a corporation, and you are probably thinking of a painter who does not do business as a corporation. (They might be a sole proprietor, for instance.) As far as I know, the $600 rule isn't about Form W-9 itself. Rather, the rule is that when your business pays more than $600 for services, you may be required to file Form 1099-MISC. One of the boxes on that form asks for the recipient's Taxpayer Identification Number (TIN), so you have to get that from them somehow, and a common way (though not the only way) is to give them a Form W-9 and ask them to fill it out and return it to you. Form W-9 also asks the recipient to state whether they are subject to backup withholding; if they are, or if they won't give you their TIN, then you have to withhold taxes from the payment and send it to the IRS, reporting this on the 1099-MISC as well. Now, if you look at the section &quot;Exceptions&quot; on the 1099-MISC instructions: Payments for which a Form 1099-MISC is not required include all of the following. Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation). However, see Reportable payments to corporations, later. Best Buy is a corporation, and none of the exceptions under &quot;Reportable payments to corporations&quot; apply when you are paying them for computer repair services. Therefore, you do not have to file a 1099-MISC when you make such payments to Best Buy. As such, you have no need to get their TIN, and therefore no need to ask them to fill out a W-9.
Your assumption about charities, "that legally you cannot use any of the money raised/created for anything but charitable purposes" is incorrect. For example, a charitable organization can have an office, and can pay rent for that office; it can pay a janitor to clean up, a secretary to do correspondence, and a CEO to run the operation. The basic generalization for a 501(c)(3) organization is To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. Specifically, A section 501(c)(3) organization must not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization. Accordingly, the organization cannot be created with the purpose of benefiting John Smith, or the board of directors of the organization, or shareholders. This does not preclude spending money to operate the charity.
Governing Law The governing law in this fact pattern would be the law of Delaware which under the relevant choice of law rules governs the internal affairs of a Delaware Corporation, specifically, the Delaware General Corporate Law (Title 8 of the Delaware Code starting with Chapter 1), as interpreted by the Delaware Courts, especially the Delaware Court of Chancery and the Delaware Supreme Court. The incorporators of the Corporation who file the Certificate of Incorporation for the Corporation with the Delaware Secretary of State control the Corporation until its directors are appointed by the incorporators, and once the directors are appointed (unless the directors are named in the Certificate of Incorporation itself or a different method for their appointment is set forth in the Certificate of Incorporation), and the shares of stock in the Corporation come into being when they issue shares. See, primarily 8 Delaware Code §§ 101, 107, 151, 152 and 158. But, the incorporators and directors may be subject to oral or written agreements, or to fiduciary duties (e.g. if the incorporator is also an attorney for the founders), that significantly limits their discretion in this regard. Also, certain rights arising from a subscription agreement (which is an agreement to purchase shares not yet issued of a corporation), must be in a signed writing to be enforced (subject to certain common law exceptions). 8 Delaware Code § 166. Application To Hypothetical Facts Using 3 out of 5 board seats, investor B then fired the founder and CEO, whose shares, it's revealed, have a vesting schedule. My question is: who owns the company at this point (assuming a negligible fraction of the shares vested)? Wouldn't investor A's 10% stake trump investor B's 5% and give him the right to elect all board members? Corporations formed under Delaware law have very broad discretion to tailor their terms to the wishes of the parties, and most of the statutory provisions are merely default rules of law that apply when not displaced by the governing documents of the corporation. If the governing documents provide that particular investors get board seats, then, notwithstanding the share ownership of the investors and shareholders, those investors get board seats. With respect to directors, this authority is formally expressly primarily at 8 Delaware Code § 141(a). Control of a corporation doesn't have to align with beneficial economic ownership of a corporation under Delaware law (or for that matter, in for profit corporations in most U.S. jurisdictions). It isn't uncommon in a Delaware corporation for control of a corporation to be vested in shareholders (and even some non-shareholders) who control only a minority of the economic value of a corporation's shares. There are several different ways that this can be documented from a nuts and bolts legal perspective, but the bottom line is that he who controls the board controls the corporation, and that selection of the board of directors can be varied by agreement as expressed in the governing documents (always a certificate of incorporation, usually bylaws, and sometimes also some sort of shareholder's agreement or voting trust).
The U.S. government only owns the assets deposited in its own accounts in Federal Reserve banks and profits from portions of its operations amounting to about $100 billion a year. Federal Reserve member banks are owned by private commercial banks in their region and are partially controlled by these shareholders (who have some say in electing regional Federal Reserve bank boards but not in the manner of a typical privately held company), but certain national economic policy issues delegated to the Federal Reserve's policy making entities are controlled by a Presidentially appointed (and U.S. Senate approved) Board of Directors which is really what people are talking about when they refer to the &quot;Fed&quot;. The overall structure is a complex public-private hybrid organization and this brief answer oversimplifies the matter which has many nuances and unique features. Most notably, the Federal Reserve's policy making board sets some key interest rates, sets the reserve requirements for commercial banks (together with and in coordination with the FDIC) and as a matter of practical reality, is the primary entity that regulates the money supply. The Federal Reserve's policy making arm can also authorize loans of U.S. funds to private business in certain circumstances (most prominently in recent times during the Financial Crisis). The Federal Reserve is also the primary administrator of the U.S. payments systems used for checks and similar negotiable instruments, and for wire transfers between financial institutions.
The analogy in the other answer isn't particularly helpful because a company isn't tangible property like a truck. It is a legal entity that has not only assets and liabilities such as tangible property (trucks, computers), intangible property (trademarks), and loans, but also owners (shareholders), a board of directors, and officers. In an acquisition, another company buys up all the stock of the entity being acquired. The acquired company may continue to exist as a subsidiary, in which case it continues to have its board and officers, or it may be dissolved, in which case its assets and liabilities would be transferred to its new parent (or to another subsidiary of the new parent).