Franchise Money Maker

Limited Liability Companies Defined
This article is written by Jeffrey Matsen
Copyright (c) 2009 Jeffrey Matsen

The following are a number of questions and concepts
specific to Limited Liability companies along with their
respective answers and definitions. The information
provided will provide the basic knowledge necessary for
someone interested in forming an LLC. An additional bonus
are the examples which give real world applications and tie
everything together.

1. What is A Limited Liability Company?

A limited liability company or “LLC” is a business entity
that is authorized by specific legislation in most states
of the United States and in many foreign countries. In
almost every instance, the state or country in question
issues a charter to the LLC upon its formation. The most
significant characteristic possessed by LLCs is part of its
name, that is, it provides limited liability. In this
regard, it is very similar to a corporation.

2. How Do You Form An LLC?

An LLC is formed by filing the Articles of Organization
with the relevant secretary of state in the U.S. or other
licensing agency in a foreign country. The Articles of
Organization are normally very brief and simple and provide
only basic information with respect to the name of the
company, the agent for service of process, the company’s
address and its manager or members.

3. How Is An LLC Structured?

An LLC is structured much like a partnership except that it
has members instead of partners. The LLC can be member
managed in a manner similar to a general partnership or it
can be manager managed like a general partner does in a
limited partnership. If the LLC is member managed,
normally, all of the members have an equal vote and decide
between themselves on not only the major business and
financial policies, but, also the every day operations. If
the LLC is manager managed, the members only decide on
major financial and business decisions and the manager
handles all of the day-to-day business operations.

4. How Is The Structure Of The LLC Determined?

The founding members or promoters of the LLC determine the
structure of the LLC by means of an Operating Agreement
which is similar to a Partnership Agreement. Normally, when
the Articles of Organization are filed, the state requires
that the organizers determine in the Articles whether or
not the LLC is member managed or manager managed. The
members have an experienced attorney draft the Operating
Agreement which sets forth the different rights and
responsibilities of the members and covers matters such as
capital contributions, division of profits, management,
member meetings, transfers of member interests, dissolution
and indemnification.

5. What Are The On-Going State Fees For An LLC?

California imposes an $800 Annual Franchise Tax on LLCs.
This amount is due on the 15th day of the fourth month
after the beginning of the fiscal year. For the first year,
the due date is the 15th day of the fourth month from the
date the LLC was organized. In addition, California, in its
arrogance, also imposes a gross receipts tax on LLCs. For
LLCs whose annual revenue is between $250,000 and $499,999,
the additional fee is $900. The fee increases to $2,500 for
annual revenues between $500,000 and $999,999 to $6,000 for
annual revenues between $1 million and $499,999, and to
$11,790 for annual revenues of $5 million or more.

6. Tax And Accounting Treatment?

The LLC can elect to be taxed as either a partnership or a
corporation. Almost always it is better to be taxed as a
partnership. What this means is that the LLC files an
Information Return and issues K-1s to its members showing
the member’s share of the income or loss that the LLC
incurs. The members then report this amount on their own
individual Returns. The LLC, if it is taxed like a
partnership, does not pay any income tax. If the LLC is a
single member LLC, the owner may treat it as a disregarded
entity for tax purposes and report the tax and related
accounting on the individual tax return of the member. This
eliminates the necessity of a tax return for the LLC.

7. Charging Order Protection

A charging order is a court order available to a judgment
creditor directed to a limited liability company or limited
partnership of which the judgment debtor is a member or
partner which grants the judgment creditor the right to
whatever distributions would otherwise be due to the debtor
member/partner whose interest is being charged. The purpose
of the charging order is to prevent the judgment creditor
of an individual partner/member from access to the
partnership/LLC assets while at the same time, giving the
creditor some relief relative to distributions from the
entity to the partner/member. The charging order denies the
creditor direct access to the LLC assets and limits the
creditor exclusively to collection of the income or
distributions which the LLC assets might engender, but
which can be withheld from distribution at the discretion
of the LLC manager. What this means is that a creditor who
has obtained a charging order only has the right to receive
distributions from the entity when and if such
distributions are ever made even though the entity itself
may have substantial income. The charging order remedy is
often times the exclusive remedy available to the creditor
and provides substantial asset protection for the LLC owner.

8. Putting Real Estate in the LLC.

If the primary purpose of the LLC is to hold title to a
real estate investment, the members will need to deed or
convey the real property involved to the LLC by means of a
formal deed that needs to be recorded. All of the rents
with respect to the real property should be deposited in
the LLC bank account and all expenses with respect to the
property should be paid for out of the LLC bank account.
All contracts with respect to the real property and service
arrangements should be exclusively in the name of the LLC.

9. Examples.

The following are some examples of when and why an LLC
might be wisely selected:

a. Ms. Simon is a widow, who in addition to her residence,
owns a four-plex . She is concerned about potential
liability above and beyond what insurance would cover and
has elected to place the four-plex into an LLC of which she
is the single member. She treats it as a disregarded entity
for tax purposes and all of the tax and accounting are
reported on her individual Return.

b. Dave, his brother Bill and their friend, Richard, each
own a one-third interest in a small shopping center. They
have created an LLC in which to hold title to the shopping
center so as to protect their respective personal assets
from any claims with respect to the shopping center. All
three of them participate equally in the LLC which is
member managed by the three of them and treat it as a
partnership for tax purposes. The LLC files a partnership
Return and Dave, Bill and Richard each receive a K-1, the
information of which they report on their own individual
Tax Returns.

c. Ron owns a 25% interest in a 76 unit apartment building
which he manages. The other 75% is owned by various members
of Ron’s family and by some friends. Ron has placed the
apartment complex into an LLC which is a manager managed
LLC since Ron is the one who does all of the management
duties and responsibilities. The LLC reports its taxes as a
partnership and Ron and all the other members receive K-1s
for their shares of profits and Ron also receives a salary
or guaranteed payment as manager which is paid to him as an
expense before there is a division of profits.

d. The LLC can also be used to operate a retail or other
business in a situation where limited liability is
desirable, but the flexibility of the LLC is required.

—————————————————-
Jeffrey R. Matsen of Wealth Strategies Counsel helps his
clients structure their business and personal assets the
best way possible to preserve, protect and transfer them in
the most efficient and tax saving manner. For more
information go to ==> http://www.wealthstrategiescounsel.com

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Pudgie’s Famous Chicken Franchise:

When you make the decision to acquire a Pudgie’s Famous Chicken you are choosing to go into business with a company dedicated to helping you succeed any way they can, every way they can. You will not find a business partner more committed to your success.

As our business partners, our franchisees bring classic food brands into the neighborhoods they serve. Pudgie’s Famous Chicken has extraordinary market awareness. It has been advertised for decades and has built up powerful customer loyalty by maintaining unique positions in the market and meeting customers’ expectations.

These are just a few of the many reasons you might want to consider joining our franchise community -

You will receive:

• Location Selection Assistance
• Store Package and Design Assistance
• Operations Support
• Comprehensive Training Programs
• Business Coaching and Support
• Signature Products Development
• Experienced Management Team
• One-Stop Supplier Selection
• Marketing and Advertising Programs
All of this is backed by a senior management and operation support team who’s there 24/7 to help its franchisees grow their business.

Your Questions, Answered…

Q- What do I get for my franchise fee?

Your franchise fee buys you a proven business system. Plus, our experience takes the guesswork out of building your business. As a member of our franchise community you’ll receive
• Instant identity through use of our brand name and logos
• Access to our structured two-week classroom-training program where you’ll learn first-hand from experienced experts.
• Site selection and lease negotiation assistance
• Construction and design support
• Marketing support for pre-opening, grand opening and ongoing operations
• Volume purchase discounts
• Inclusion in advertising campaigns
Q- Does Pudgie’s Famous Chicken provide financing?
We do not provide financing directly. However, we have developed relationships with third party lenders who can discuss financing options with you.

Q- What type of experience do I need?
There is no magic background. Some franchisees have retail experience, sometimes specifically in food service. This can be helpful but is not essential. The most important ingredient is the desire and commitment to succeed, as well as the ability to communicate and get along with people.

Q- What about finding a store location?
We will help you find a location. Our method is to develop a list of available sites and then pick the best from this group. You may also lease or purchase a location on your own. We do recommend you have your lease or purchase agreement reviewed by an attorney before signing.

Q- Who designs and builds the store?
We will provide you with a set of criteria. You will choose and hire an architect who will design the unit and advise you concerning local codes and regulations. We will approve the final plans. Our store opening team will work with you and your architect to provide the right equipment package in the kitchen.

Q- What type of store opening support can I expect?
Our initial training involves two weeks of classroom and hands-on training. After you “graduate,” our store operations team is with you every step of the way for another 7 days at your new store to help make your opening a smooth operation and your grand opening as successful as possible.

Q- Can I buy a territory?
We do offer protected territories. The area of protection will depend on competition, demographics and other locations with our brands. The area is defined by radius or zip code.

Q- Can I co-brand with other concepts?
Yes, provided your choice meets our criteria. We currently co-brand with our own brands Arthur Treacher’s Fish and Chips and Pudgie’s. In addition, we co-brand with Miami Subs and Nathan’s Famous Hot Dogs.

Please contact us at 1.212.359.3600
Please visit www.pudgies.com

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