What does PLLC mean in legal terms

The USA is one of Germany's most important trading partners. While many German companies have been active in the USA for years or decades, many - especially medium-sized - companies are only now trying to take advantage of their opportunities there. Whether it is a multinational corporation or a family-owned SME, the same questions often arise when encountering the - sometimes confusing - American legal system. The aim of this series is to provide practical answers to these questions and to provide some basic knowledge of the current legal situation in the USA.

The focus of this article and its predecessor (and its successor) is the choice of legal form when establishing an American subsidiary. The first part focused on applicable law and some general characteristics of the corporation; this continuation outlines the characteristics of Limited Liability Companies (LLCs) as well as partnerships.


  • An LLC is the legal entity that most closely resembles a German GmbH.
  • As with a corporation, one or more natural or legal persons may be members of an LLC; this applies (with a few exceptions1) also for foreign persons.
  • A special feature of the LLC (compared to the corporation) is the relative freedom to distribute profits and losses among the members. Because such freedom could quickly lead to tax evasion, these distributions must have a "substantial economic effect". In addition, the members must keep a parallel bookkeeping, which always keeps an eye on the differences between "capital accounts" and "tax accounts" of the members. This can get quite tricky, especially when contributions in kind are made, new members join the LLC, profit interests are spent, or the LLC becomes indebted.
  • An LLC does not require any share capital. Instead of stocks or "shares", the company shares are called "units" or sometimes "interests". While they usually have no nominal amounts, they usually correspond to a certain capital contribution, which is reflected in the capital accounts. It is also possible to issue shares without capital contribution (Profits Interests); they are often used as part of an incentive program.
  • Members' liability for the LLC's debts is basically limited to the amount of their shares. However, as with a corporation, direct liability is possible if certain circumstances exist (e.g. amalgamation of assets, under-capitalization, fraud, etc.).
  • An LLC is established by submitting an Articles of Organization2) at the competent authority. As with a corporation, no notarizations or other notarial procedures are required when setting up. The waiting time for a confirmation of receipt or formation can last between an hour and several days, depending on the authority of the country of formation.
  • Because - as with a corporation - the deed of incorporation can be viewed by the public, its content is usually limited to information required by law, such as:
    • the company, which must contain "Limited Liability Company", "LLC" or the like,
    • the address of a person within the founding state who can receive legal service on behalf of the LLC (Registered Agent)3 and o whether the LLC is run by its members or one or more managers.
  • In addition to the deed of incorporation, an LLC has a partnership agreement (Operating Agreement or Limited Liability Company Agreement) that sets out the general conditions for capitalization, bookkeeping and management of the LLC, as well as clauses on the distribution of profits and losses, distributions and the transfer of shares. Like the bylaws of a corporation, it is not public.
  • An LLC can either be managed by the members (i.e. a Member-Managed LLC) or by one or more managers (i.e. a Manager-Managed LLC). Behind this apparent dichotomy lies a spectrum of different leadership constellations. The managers can act like a board of directors through officers or take over management of the business themselves. As with a corporation, foreigners as well as non-members can be managers and officers.
  • By default, an LLC is not taxable at the federal level - gains and losses are taxed or deducted at the member level.4 Thanks to the check-the-box procedure, the members of an LLC can determine that the IRS treats it like a corporation.5 This is in stark contrast to the German comparison of legal types (which existed in a similar form in the USA before 1996).
  • In some states (e.g. Delaware) there is a special form of LLC - the "Series LLC". The purpose of a Series LLC is to protect the assets of one division of the LLC from the liability claims of the other divisions. An example of this would be an airline that, instead of having multiple LLCs (i.e. one for each aircraft), has a single Series LLC with one series per aircraft. An alleged advantage of such structures is a reduction in administrative costs. Since commentators often recommend that each series have its own bank account or keep its own books, the question remains whether such savings will really be realized. In addition, the Series LLC laws raise many questions (e.g. regarding their recognition, taxation, etc.). Until these are finally resolved, the Series LLC will remain of theoretical rather than practical interest.


  • A partnership is a legal entity that is similar to an LLC in many ways. Today the LLC is preferred to the partnership, but in certain situations (e.g. funds, real estate transactions, service companies) this is still used.
  • In contrast to an LLC, a partnership requires at least two people (natural or legal) as partners; as with a corporation or LLC, in general these may also be of foreign origin.
  • As in Germany, there are different types of partnerships:
    • General partnership: similar to a German oHG. A general partnership is created without a certificate of incorporation and each partner assumes joint and several liability for the debts of the partnership. If nothing else is regulated in the partnership agreement (if there is one at all), each partner can act on behalf of the partnership and the partnership automatically terminates with the death, illness or termination of a partner.
    • Limited Partnership (LP): similar to a German KG. A limited partnership, like an LLC, is formed by a deed of incorporation.6 The partners of an LP are divided into general partners and limited partners. As with an oHG, the general partners are jointly and severally liable for the debts of the partnership,7 while the liability of the Limited Partners is limited to the amount of their shares. Originally, only the general partners were allowed to take part in the management of an LP; Nowadays, limited partners in many countries can participate in the management with the same commitment as general partners. The LP has two special forms - the Limited Liability Partnership (LLP) and the (even rarer) Limited Liability Limited Partnership (LLLP). The basic characteristic of these forms is limited liability also for the general partner (sometimes in general, sometimes only in relation to negligence claims).
  • A partnership is treated by the IRS in the same way as an LLC that has several members.8 Consequently, the instructions about LLCs regarding the distribution of profits and losses, parallel bookkeeping / "capital accounts" and taxation also apply to partnerships.
  • Like an LLC, a partnership usually has an Operating Agreement or Partnership Agreement that regulates issues similar to an LLC's Operating Agreement; this is also not public.

Although the LLC and (to a lesser extent) the Partnership are often preferred by domestic investors because of their corporate tax exemption, these legal forms are rarely the best choice for the subsidiary of a German company. The last part of this series will deal with the tax differences between the corporation and the LLC or partnership from the perspective of a German investor.


1 Some general ownership restrictions exist at the federal level in the aviation, maritime, telecommunications, and banking sectors. In addition, in some states there are similar rules with regard to the agricultural economy or real estate industry.

2 In Delaware, the incorporation deed of an LLC is called "Certificate of Formation".

3 You can often find sample examples or forms for the deed of incorporation on the website of the competent authority; these can serve as a starting point.

4 An LLC with only one member is treated by the IRS as part of the member instead of as an independent entity (a so-called disregarded entity).

5 The name "Check-The-Box" refers to Members exercising their right to vote by ticking a box on IRS Form 8832. While the form appears fairly simple, it is easy to make serious mistakes.

6 The certificate of incorporation of an LP is similar to that of an LLC.

7 However, the general partner of an LP is almost always a legal entity with limited liability.

8 From the perspective of the IRS, LLCs are a type of partnership and both are governed by the same regulations (Subchapter K).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Reinhart Boerner Van Deuren s.c.
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