The Limited Liability Company Revisited

By Sager, William H. | The National Public Accountant, June 1992 | Go to article overview

The Limited Liability Company Revisited


Sager, William H., The National Public Accountant


In the March 1992 issue of the National Public accountant we discussed the limited liability company (LLC) as a new form of practice organization available under several states' corporation laws. The Virginia limited liability Company Act of 1991 was cited as an example of the new corporate form, which combines the limited liability of the business corporate form with the tax benefits of a partnership. The Virginia law, as we described it in the March 1992 "Washington Comment" excluded "professional services" as defined under the Virginia Professional Corporations (PC) law. Hence Virginia CPAs or other professional licensees were not able to take advantage of LLC form of organization.

The defect in the Virginia LLC law was corrected in the 1992 legislative session when the General assembly made numerous changes to the law and related statutes effective July 1, 1992. Limited liability companies will be allowed to engage in the same professional activities now permitted to PCs because the PC law was amended to accommodate LLCs as companies that are permitted to engage in the practice of a profession. Additionally, the legislature passed a new Professional Limited Liability Company Act that now provides all of the requirements for the formation of a professional limited liability company or PLC. If you can form a PC under the Virginia PC law, you can now form a PLC under the 1992 revisions. Thus,the major objections and criticism of the LLC that were not addressed in the original 1991 LLC law (and referred to in the March 1992 "Washington Comment") were corrected by the 1992 legislature.

To resolve the problems encountered by the large-scale licensed CPA firm that engages in a multistate practice, the 1992 Virginia revisions also provided for cross-country mergers of corporations and general or limited partnerships with a Virginia LLC. In other words, the Virginia law now permits mergers among stock corporations, limited partnerships and LLCs to facilitate interstate operation of national or regional CPA firms.

As of the beginning of the 1992 state legislative sessions, the following eight states had LLC laws: Colorado, Florida, Kansas, Nevada, Texas, Utah, Virginia and Wyoming. In Texas, the State Board of Public Accountancy held that it would interpret its form of practice rule so that a limited liability company (LLC) organized under the Texas Limited Liability Company Act of 1991 with one member would be construed under the Public Accountancy Act as a sole proprietorship. An LLC with two or more members would be viewed as a partnership. Under the Board's interpretation, CPAs in Texas may now form and operate under the LLC law.

There is no assurance that an accountancy board's interpretation of an LLC law will be similar to that of the Texas Board. …

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