Asset Protection 101

Posts Tagged ‘limited liability company’

Passive investors of a limited liability company: (LLC)

Passive investors of a limited liability company (LLC) are members who are not managers similar to limited partners of a limited partnership.

Taxation of limited liability company (LLC)

If the limited liability company (LLC) has two or more members, the limited liability company (LLC) is taxed as a partnership. The LLC files a partnership tax return which is the IRS form 1065 and each member of the LLC will receive an IRS form K-1. Members of the limited liability company (LLC) can receive income and tax deductions in proportions that may or may not be equal to their limited liability company (LLC) ownership shares. Therefore, the limited liability company (LLC) is the only business legal entity that offers the flexibility of a partnership with the protection of a corporation. In a way, an LLC is like a marriage between a partnership and a corporation.

One member LLC or single member LLC

An LLC can be formed by one person in most states. An LLC can consist of one member. For a one member LLC or single member LLC, the limited liability company (LLC) is disregarded for federal income tax purposes.

An example of a single member LLC

If a business is run as a sole proprietor and then changed to an LLC, the business owner would have liability protection under state law but would continue to report on IRS tax form schedule C for his or her tax return.

In most states, a member of an LLC ’s interest in an LLC cannot be attached by a creditor. The creditor’s remedy is generally limited to a charging order. This makes an LLC appealing as an asset protection tool but since the LLC as a business entity is now, it has not been heavily tested in court.

Using a Family limited partnership (FLP) and an LLC

If you are using a family limited partnership (FLP) and a limited liability company (LLC) for asset protection and hold your assets, you must have a valid business purpose for the liability protection to be enforceable. That means, a family limited partnership with your personal residence as its sole asset is not a valid business entity unless you pay rent to the family limited partnership.

A limited liability company or LLC is a new and very popular business entity. The limited liability company (LLC) is owned by partners. Like its name suggests, partners of limited liability company (LLC) have limited liabilities. Partners of an LLC are called members of the limited liability company (LLC). Limited Liability Companies (LLCs) are often used in asset protection in most key asset protection strategies.

Forming a Limited Liability Company (LLC) – explanation of an LLC

The LLC requires the filing of an article of organization or article of incorporation with secretary of state of the state the Limited Liability Companies (LLC) is incorporated. Many rules for forming a limited liability company (LLC) are similar to forming a corporation such as a C corporation or an S corporation.

Limited liability in limited liability company (LLC)

All members of a limited liability company (LLC)are not liable beyond their contributions to the limited liability company (LLC). This makes an LLC much more attractive as a business entity than a limited partnership. All members of a limited liability company (LLC) can participate in the management of the limited liability company (LLC) without personal liability of the limited liability company (LLC)’s debts or lawsuits against the company.

Who can run the limited liability company (LLC)?

The limited liability company (LLC) can be run by its members or by a manager of the limited liability company (LLC). The manager of the limited liability company (LLC) can be an individual who can be but does not have to be a member of the limited liability company (LLC), or an entity such as a corporation or another limited liability company (LLC).

Manager managed limited liability company (LLC)

When a limited liability company (LLC) is manager managed, it is similar to a limited partnership in the way the limited liability company (LLC) operates. The manager of the limited liability company (LLC) makes all the day to day decisions. However, the manager of the limited liability company (LLC) is not personally liable for the LLC’s debts or lawsuits.

When a limited liability company (LLC) is member managed, all members of the limited liability company (LLC) can participate in the management and control of the limited liability company (LLC). A member managed LLC is very similar to a general partnership except that the members are not liable for the debts or liabilities of the company.