Corporate Management Agreements: Corporation v. Limited Liability Company (LLC)

The Michigan Legislature adopted the Michigan Limited Liability Company Act in 1993, and since then numerous business persons have taken advantage of this new entity form based on its flexible characteristics. In fact, most business people who are looking to form a new business entity presume that an LLC is the easiest path to take. However, the Michigan Legislature also added Section 488 to the Michigan Business Corporation Act in 1997. This section allows corporations to elect to take advantage of the more flexible management options that are available to LLCs. For example, a Section 488 agreement may allow a corporation to provide greater protections to minority shareholders, eliminate the need for a board of directors, or allow a single shareholder to trigger the dissolution of the corporation. Section 488 agreements must be entered into by all shareholders of the corporation, and all shareholders must agree to terminate the same.

Therefore, both corporations and LLCs formed in Michigan can benefit from flexible management terms. In reality, both LLCs and traditional corporations have different structural characteristics and implications that may make one form more favorable to a particular client based on their individual circumstances, industry and goals. It is important to understand these differences and learn which entity form is the best for each particular situation.

The topics contained in this article are intended to be general and representative in nature and not specific legal advice for any particular circumstance. Please feel free to contact Duba & Duba, PLLC to inquire about an analysis of your particular facts and circumstances.