What is the origin of the Limited Liability Company? (The answer might surprise you!)

The LLC, or as it is officially known, the Limited Liability Company, is actually quite new in the United States. In fact, in 1977, Wyoming became the first state to enact a limited liability company statute. Some people think that the first could have been Nevada, LLC or Delaware, LLC. But they could be wrong. In this area of ​​law, we have Wyoming to thank for bringing the notion of a limited liability company to this country.

The term “import” in the above award raises a question. If this type of company was imported, where did it come from? The answer might surprise you. The notion of an LLC originated in Germany in 1892. Once this type of limited liability company was established in Germany, it essentially spread throughout the world with the interesting exception of the United States.

This is not to say that some states were not working on a marriage between partnerships and corporations to allow for some form of limited liability. Pennsylvania, Virginia, New Jersey, Michigan and Ohio were experimenting with it. However, it was Wyoming that in 1977 became the first American state to enact what we would call a true limited liability company. Wyoming has led and continues to lead the way with respect to new forms of entities that can be used in a business context. The most recent development is Serial LLC, which originated in Wyoming and has now spread to five other states. (More on Wyoming’s leadership in this regard will be covered in later articles.) The Wyoming LLC was inspired by the German code of 1892, as well as the limited liability company forms of Panama and other Latin American forms.

As a result, the Wyoming Limited Liability Company Law contains the same four requirements that are required by law in other countries: 1) The word “limited” must appear somewhere in the company name; 2) the entity has full legal personality; 3) a member or members have control over the admission of additional members; and 4) the LLC must be dissolved with the agreement of a member and provides for probate or sale of the deceased party. This has been modified in many states to allow the parties to continue in business if they wish).

We often talk in terms of LLCs being fairly new. Perhaps compared to corporations, such a statement may be accurate. However, Limited Liability Companies have been used in many countries for the better part of a century to help their owners with risk management, risk planning and asset protection.

In future articles we will discuss the use of Limited Liability Companies in the United States and how they have become very popular instruments for the above purposes.

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