The allure of the limited liability company is its unique ability to bring together the best features of all other business forms in a single business organization. If the company incurs a debt, the amount of responsibility that the owners, or members, are accountable for is limited. Often this responsibility varies according to the amount contributed to fund or invest in the company. While anything up to that amount may be lost, the company’s members are not personally liable beyond that contribution. In this way, the individuals are protected, similar to a corporation. Partnerships do not have such protection for their owners.

In addition, a limited liability company itself is not taxed. Instead, the individual members pay taxes on the profits or dividends that the company distributes to them. Corporations are taxed and their owners, or shareholders, pay taxes again on the dividends the corporation pays to them. In that way, corporate profit is taxed twice. Like partnerships however, limited liability companies only pay taxes once. Corporations, including those having made a Subchapter Selection, do not offer their shareholders all the pass-through tax benefits of a partnership.

The purpose of this guide is to share the basic framework of typical limited liability codes and highlight areas of decisions in drafting and common issues that should be addressed such as:

• Should the tribe recognize limited liability companies not organized under tribal law to accommodate the widespread multi-state activities of modern businesses?
• Should the tribe require more than one owner to incorporate and operate an LLC?
• May an LLC be formed for purposes other than to make a profit?
• Should owners have the power and right to withdraw from a company and receive a distribution of the fair value of their interests?
• Should a member's dissociation cause a dissolution of the company?
• Who has the authority to bind the company and what are the limits of that authority?
• What are the legal fiduciary duties owners and managers owe to the company and to each other?
• How are the rights to manage a company allocated among its owners and managers?
• Do the owners have the right to sue a company and its other owners in their own right, as well as derivatively on behalf of the company?
• May existing partnerships and corporations be converted to limited liability companies, and may limited liability companies merge with other limited liability companies and other business organizations?
• What law should govern foreign limited liability companies?
• Are any or all of these and other rules simply default rules that may be modified by agreement or are they nonwaivable?

The tribe can include as few or as many rules as it deems necessary into its limited liability code. What is not cemented in tribal law, or their limited liability company code, is left to the companies to determine in an agreement among the members. Provisions can be included in the code as a default subject to sophisticated agreements between companies. The fewer rules the tribe has, the more space it leaves the members to design a company that will meet their needs. Unfortunately, this does not protect companies that do not have access to the expertise of limited liability company attorneys. The default provisions can be relied on for protection in such instances. To further protect these companies, the law can include non-waivable provisions. Some codes group their non-waivable provisions in a single section. On the other hand, the tribe can create a less strict framework that is very flexible and inviting to limited liability companies.