Many small businesses are sole proprietorships. When a small business owner decides to establish his company as a separate legal entity, he must decide which option works best. Corporations are one business structure, while limited liability companies are another. Corporations are automatically perpetual until dissolved. LLCs can have perpetual or indefinite life spans.
Perpetual means eternal or of unlimited duration. Traditionally, corporations had a perpetual existence and LLCs had specified duration periods, often a maximum of 20 years. Changes the Internal Revenue Service made to its codes encouraged states to modify their laws to allow LLCs to also have a perpetual existence. However, whereas all corporations automatically are perpetual until dissolved, when they create the LLC organizers choose perpetuity by not specifying duration or a dissolution date.
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LLCs that exist until a particular event or date occurs have indefinite life spans. You can specify whether or not your LLC has a specific duration when you file the articles of organization. The company will have the option to dissolve at the specified time or file a life extension request. You can provide a specific dissolution date or event as the dissolution trigger. For example, you can state that your LLC will dissolve on Oct. 20, 2035, or that it will dissolve once you sell the property your LLC holds.
Organization and Operating
You form an LLC by filing articles of organization with the appropriate secretary of state. In Arizona, you file with the Arizona Corporation Commission. If you use the state's template, you must specify the duration or dissolution date of your LLC to make the term indefinite. If you do not, or if you omit this section, the state will deem your LLC perpetual. Since organizers typically keep the articles simple, members usually place most of the guidelines that govern the LLC's operation in the operating agreement. For LLCs with indefinite terms, members should delineate any actions that trigger a dissolution of the company.
Automatic Dissolution of Indefinite LLCs
Unless your LLC's operating agreement specifies exactly what happens in the event a member dies, resigns or declares bankruptcy, most states require that indefinite LLCs dissolve when these events occur. If you did not address these issues in your operating agreement, you still have options. Most states, including Arizona, allow the extension of an LLC's life or conversion to perpetual if the majority of members vote to do so within 90 days of the automatic dissolution. You must submit "articles of amendment" to continue your LLC or "articles of termination" to dissolve your LLC in Arizona. In other states, submit a similar notice of continuity or dissolution to the secretary of state.
If you formed your LLC for a specific purpose that has a limited time frame or to acquire, manage and sell particular real estate, an indefinite LLC may be your best option. If you formed your LLC to operate a business that may last for five years or 25 years, a perpetual LLC would likely be your best option.