Limited Liability Companies

LLC's have gained popularity because they are a "hybrid entity". That means that LLC's offer the advantages of both corporations and partnerships and even individual tax treatment for certain activities.

LLC's are a fairly versatile entity when it comes to taxation and asset protection. This is because a LLC can elect to be taxed as disregarded, as a partnership, "S" Corporation, or "C" Corporation. From an asset protection standpoint, LLCs give you similar protection to that of a corporation. In other words, assets held inside an LLC are protected against the claims of creditors against the individual owners of the LLC. The business activities that take place inside the LLC subject only the assets of the LLC to liability. This means that business activities engaged in by an LLC's will only expose the LLC's assets to liability. The individuals who own the LLC's do not need to worry about losing their personal assets because of the business activities of the LLC.

Perhaps the most interesting thing about LLC's is the fact that the LLC may be disregarded for tax purposes in the case of a single owner LLC. In English, this means that a single owner LLC (a Living Trust or a husband and wife can be considered a single owner) can own, for example, a personal residence. The benefits of an individual owning the personal residence may not be forfeited simply because the personal residence has now been placed into an LLC. At the same time, creditors of the individual owner of the residence may not be able to get at the personal residence in the event of a lawsuit and judgment. This gives the owner of the property the best of both worlds: the tax benefits with a high degree of asset protection.

From a business standpoint, LLC's are great because they require minimal record keeping and can be managed without the use of a Board of Directors. This has caused many discussions in the legal field as to whether or not to afford an LLC the same protection as a corporation, which is typically more formal. The results thus far have been quite positive with LLCs being given similar treatment as far as protecting assets as a corporation even without the same standard of formality. Nonetheless, it is advisable to keep records of decisions through a service such as the BOSS Business Protection Plan (available in any of our Office Packages).

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