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Copyright (c) 1994 West Virginia Law Review
West Virginia Law Review

ARTICLE: WEST VIRGINIA'S LIMITED LIABILITY COMPANY ACT: PROBLEMS WITH THE ACT

Summer, 1994

96 W. Va. L. Rev. 905

Author

Ann Maxey *

Excerpt



I. Introduction


West Virginia, in 1992, was the thirteenth state to enact a limited liability company act. 1 The Act gave West Virginia business planners another option in choosing a form of entity that best meets the needs of owners forming a business. Before limited liability companies be came an alternative, participants who wanted to co-own a business had four forms from which to choose--partnerships, limited partnerships, corporations taxed as C corporations, and corporations taxed as S corporations.

Partnerships offer the advantages of flexible flow-through taxation that allows the partners to decide how to allocate profits and losses and to share distributions among themselves. This flexibility produces the optimum method under the present federal income tax system to reduce the tax liability of the individual partners and to allocate profits according to each partner's economic contribution to the business. A significant drawback of the partnership form is that each partner has unlimited liability for business liabilities and for the other partners' actions on behalf of the partnership.

The limited partnership form maintains the favorable partnership taxation treatment, and the limited partners enjoy limited liability. Each limited partnership, however, must have at least one general partner who continues to have unlimited liability, and the limited partners will lose their limited liability protection if they actively participate in the business.

State corporation statutes limit the liability of shareholders to the amount the shareholders have invested in the business even though the shareholders actively participate in the business ...
 
 
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