ASC 272-10

Overall

272 Limited Liability Entities

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In brief

IntroductoryPresentation Disclosure Financial statement presentation Debt and equity

ASC 272-10 provides financial reporting and presentation guidance for U.S.-organized limited liability entities (LLCs and LLPs) that issue GAAP financial statements. It requires LLC statements to look like partnership statements — equity is labeled "members' equity," headings must clearly identify the entity as an LLC, and a complete set includes a statement of financial position, statement of operations, statement of cash flows, notes, and information on changes in members' equity. It also mandates disclosure of any limitation on members' liability, the classes of member interests and their rights, and a finite life date if applicable.

Key points (7)

The Topic applies to all entities structured as limited liability entities organized in the United States that report under GAAP (272-10-15-2; 272-10-05-1).
A complete set of LLC financial statements includes a statement of financial position, statement of operations, statement of cash flows, and notes, plus information on changes in members' equity presented as a separate statement, combined with the statement of operations, or in the notes (272-10-45-1).
Statement headings must clearly identify the statements as those of a limited liability company, and the equity section must be titled members' equity, with separate reporting of each class of members encouraged (272-10-45-2; 272-10-45-3).
Even though members' liability is limited, a negative total members' equity balance must be reported as a deficit in the statement of financial position (272-10-45-4).
Amounts due from members for capital contributions are presented as deductions from members' equity, not as assets, except in very limited circumstances with substantial evidence of ability and intent to pay promptly (272-10-45-5; 505-10-45-2).
Required disclosures are a description of any limitation of members' liability, the classes of members' interests with their rights, preferences and privileges (and their amounts if not shown separately in the equity section), and the date a finite-life LLC will cease to exist (272-10-50-1; 272-10-50-3).
If formation of the LLC creates a new reporting entity, the change is retrospectively applied to all prior periods presented (272-10-45-7; 250-10-45-21), and any exceptions to comparability of comparative statements must be disclosed (272-10-45-6; 272-10-50-2).

For students. This is a short, presentation-only Topic that is easy exam points: remember "members' equity," the deficit rule, and the three required disclosures (liability limitation, classes of interests, finite life). A common misunderstanding is thinking limited liability means no deficit can be shown, or that subscriptions receivable from members can sit on the balance sheet as an asset — both are wrong.

limited liability company members' equity classes of member interests limitation of members' liability deficit in members' equity due from members for capital contributions new reporting entity comparative financial statements

Machine-generated study aid for ASC 272-10. Check the source paragraphs below.

272-10-00Status

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272-10-00-1

The following table identifies the changes made to this Subtopic.

Paragraph	Action	Accounting Standards Update	Date

272-10-45-6	Amended	Maintenance Update 2020-18 (PDF)	11/25/2020
272-10-45-7	Amended	Accounting Standards Update No. 2010-08	02/02/2010

272-10-05Overview and Background

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272-10-05-1

The Limited Liability Entities Topic provides reporting guidance for limited liability entities organized in the United States that prepare financial statements in accordance with generally accepted accounting principles (GAAP).

272-10-05-2

A limited liability company generally has the following characteristics:

a
It is an unincorporated association of two or more persons.
b
Its members have limited personal liability for the obligations or debts of the entity.
c
It is classified as a partnership for federal income tax purposes.

272-10-05-3

Limited liability companies have characteristics of both corporations and partnerships but are dissimilar from both in certain respects. The following discussion compares characteristics typical of many limited liability company structures with characteristics of corporations or partnerships; however, those characteristics may not be present in all limited liability company structures.

272-10-05-4

Like a corporation, the members (that is, owners) of a limited liability company generally are not personally liable for the liabilities of the limited liability company. However, like a partnership, the members of an limited liability company—rather than the entity itself—are taxed on their respective shares of the limited liability company's earnings. Unlike a limited partnership, it is generally not necessary for one owner (for example, the general partner in a limited partnership) to be liable for the liabilities of the limited liability company. Also, unlike a limited partnership in which the general partner manages the partnership, or a corporation in which the board of directors and its committees control the operations, owners may participate in the management of a limited liability company. Members may participate in a limited liability company's management but generally do not forfeit the protection from personal liability afforded by the limited liability company structure. In contrast, the general partner of a limited partnership has control but also has unlimited liability, whereas the limited partners have limited liability like the members of a limited liability company. Additionally, all partners in a general partnership have unlimited liability. Like a partnership, financial interests in most limited liability companies may be assigned only with the consent of all of the limited liability company members. Like a partnership, most limited liability companies are dissolved by death, bankruptcy, or withdrawal of a member.

272-10-05-5

U.S. limited liability companies and limited liability partnerships are formed in accordance with the laws of the state in which such entities are organized. Because those laws are not uniform, the characteristics of limited liability companies vary from state to state. The characteristics listed in the preceding paragraph are not intended to be representative of characteristics in the statutes of each state. Preparers of a limited liability company's financial statements should be cognizant of the legislation enacted in the jurisdiction in which the entity is organized.

272-10-05-6

In order to be classified as a partnership for federal income tax purposes, a limited liability company must lack at least two of the following corporate characteristics:

a
Limited liability
b
Free transferability of interests
c
Centralized management
d
Continuity of life.

Many states have adopted similar requirements for limited liability companies to be classified as partnerships for state income or franchise tax purposes. However, certain states have enacted limited liability company legislation that includes income tax requirements.

272-10-15Scope and Scope Exceptions

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Overall Guidance

272-10-15-1

The Scope Section of the Overall Subtopic establishes the pervasive scope for the Limited Liability Entities Topic.

Entities

272-10-15-2

The guidance in the Limited Liability Entities Topic applies to all entities that are structured as limited liability entities.

272-10-45Other Presentation Matters

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272-10-45-1

A complete set of limited liability company financial statements shall include all of the following:

a
A statement of financial position as of the end of the reporting period
b
A statement of operations for the period
c
A statement of cash flows for the period
d
Accompanying notes to financial statements.

Additionally, the limited liability company shall present information related to changes in members' equity for the period. This information may be presented as a separate statement, combined with the statement of operations, or in the notes to financial statements.

272-10-45-2

The headings of a limited liability company's financial statements shall identify clearly the financial statements as those of a limited liability company.

Presentation of the Equity Section of the Statement of Financial Position

272-10-45-3

The financial statements of a limited liability company shall be similar in presentation to those of a partnership. The limited liability company owners are referred to as members; therefore, the equity section in the statement of financial position shall be titled members' equity. If more than one class of members exists, each having varying rights, preferences, and privileges, the limited liability company is encouraged to report the equity of each class separately within the equity section. As indicated in paragraph 272-10-50-1, if the limited liability company does not report the amount of each class separately within the equity section, it shall disclose those amounts in the notes to financial statements (see paragraph 272-10-50-3).

272-10-45-4

Even though a member's liability may be limited, if the total balance of the members' equity account or accounts described in the preceding paragraph is less than zero, a deficit shall be reported in the statement of financial position.

272-10-45-5

If the limited liability company records amounts due from members for capital contributions, such amounts shall be presented as deductions from members' equity. Presenting such amounts as assets shall be inappropriate except in very limited circumstances when there is substantial evidence of ability and intent to pay within a reasonably short period of time, as described in paragraph 505-10-45-2.

Comparative Financial Statements

272-10-45-6

Presentation of comparative financial statements is encouraged, but not required, by Section 205-10-45. If comparative financial statements are presented, amounts shown for comparative purposes shall be in fact comparable with those shown for the most recent period, or any exceptions to comparability shall be disclosed in the notes to financial statements (see paragraph 272-10-50-2).

272-10-45-7

If the formation of the limited liability company results in a new reporting entity, the guidance in paragraph 250-10-45-21 shall be followed and the change shall be retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periods.

272-10-50Disclosure

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272-10-50-1

If the limited liability company does not report the equity of each class of its members separately within the equity section, it shall disclose those amounts in the notes to financial statements (see paragraph 272-10-50-3). If the limited liability company maintains separate accounts for components of members' equity (for example, undistributed earnings, earnings available for withdrawal, or unallocated capital), disclosure of those components, either on the face of the statement of financial position or in the notes to financial statements, is permitted.

272-10-50-2

As indicated in paragraph 272-10-45-6, if comparative financial statements are presented, amounts shown for comparative purposes shall be comparable with those shown for the most recent period, or any exceptions to comparability shall be disclosed in the notes to financial statements. Situations may exist in which financial statements of the same reporting entity for periods prior to the period of conversion are not comparable with those for the most recent period presented, for example, if transactions such as spinoffs or other distributions of assets occurred prior to or as part of the limited liability company's formation. In such situations, sufficient disclosure shall be made so the comparative financial statements are not misleading.

272-10-50-3

Both of the following disclosures shall be made in the financial statements of a limited liability company:

a
A description of any limitation of its members' liability
b
The different classes of members' interests and the respective rights, preferences, and privileges of each class. Additionally, as discussed in paragraph 272-10-50-1, if the limited liability company does not report separately the amount of each class in the equity section of the statement of financial position, those amounts shall be disclosed.

If the limited liability company has a finite life, the date it will cease to exist shall be disclosed.

272-10-50-4

Section 740-10-50 requires specific disclosures relating to accounting for income taxes. Limited liability companies subject to income tax in any jurisdiction shall make the relevant disclosures under that Section.

272-10-50-5

As discussed in paragraph 272-10-50-2, if comparative financial statements are presented, additional disclosures may be required.

272-10-60Relationships

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Income Taxes

272-10-60-1

For guidance on recognizing the financial statement effects of a tax position, see paragraph 740-10-25-6.

272-10-60-2

For guidance on recognizing a deferred tax liability or asset for temporary differences at the date that a nontaxable entity becomes a taxable entity, see paragraph 740-10-25-32.

272-10-60-3

For guidance on adjustments of a deferred tax liability or asset for enacted changes in tax laws or rates or a change in the tax status of the entity, see paragraph 740-10-50-9.

Business Combinations

272-10-60-4

For guidance on common control transactions, see Subtopic 805-50.