Do you remember the 2004 movie Collateral, which included Jamie Foxx and Tom Cruise as the two main actors?

This movie was made by what was then called DreamWorks SKG, Inc. and was distributed by another company called DW Studios, LLC. As it turns out, DW Studios, LLC is a limited liability company that was owned at the time by Paramount Studios.

The limited liablity company has in many ways become the preferred means to do business. With the "check the box" regulations issued by the IRS, you can choose to treat the LLC as a partnership or as a corporation for tax purposes - you just need to tell the IRS which option you choose. Conversely, from a corporate governance perspective, you can run it like a regular company with officers and directors or alternatively, you can run it like a partnership. In this instance, all you need to do is inform the Secretary of State which option you have selected.

And the default rules in the California Corporations Code that govern an LLC (adopted by the Revised Uniform Limited Liability Company Act) are based upon the basic rules that govern partnerships, though there are many provisions that relate to corporations that also apply.

Academic Debate

Some lawyers argue that LLC's are essentially just partnerships with limited liability for its members. Others disagree asserting that LLC's are more akin to a corporation without the need to maintain corporate formalities. This counter argument take the position that just because an LLC has characteristics of a partnership does not make it one. Ironically, those on both sides of this debate provide the very same analogy of Tom Cruise and his SUV and his private airplane.

Is an airplane like a car just because it has similar characteristics such as wheels and brakes? The argument is while it does have these features it is still intended to fly - hence the jet engine and the wings, tail and all the other things that are required to take flight.

As for the SUV - is it a truck or a car? It has characteristics of both but just because it has features from a car does not make it a car and just because it may drive like a truck does not make it one either.

A third smaller group of attorneys argue that the SUV is nothing more than a grown-up AMC Pacer. I'm not sure how that fits into the debate, but people come up with different arguments.

Question Presented

What is your opinion on the subject? Is the limited liability company a mere partnership with the benefit of limited liability and therefore partnership laws should uniformly apply to them? Or, perhaps the LLC is closer to a corporation but with the flexibility of limited corporate governance responsibilities? Or perhaps you are part of an alternative third way - the legal equivalent of the AMC Pacer?