Family Partnerships have long been known as a safe harbor for shifting income and allocating wealth among family members without the consequences of gift and income tax, or loss of control issues. Now a new hybrid business entity, called a Limited Liability Company or LLC, has begun to make its appearance. The LLC combines the best features of partnerships and corporations without their restrictions and is proving itself to be a viable alternative for real estate ventures, small businesses and family partnerships because of its pass through tax advantages.
A properly formed LLC is taxed as a partnership but its members enjoy limited liability like corporate shareholders. Members are not personally liable for the debts, obligations and liabilities of the LLC and may make "special allocations" among partners. To form a LLC, one must publish a notice and file Articles of Organization with the Secretary of State. The operating agreement, which is similar to the bylaws of a corporation, sets forth the members' rights and obligations and the required procedures for the LLC's operation; however it is not required to be publicly filed which maintains confidentiality of the ownership structure.
What are the Advantages of forming an LLC?
Unlike a Limited Partnership, a Limited Liability Company is not required to declare a general partner. The manager of an LLC does not have to maintain a 1% interest in the entity; therefore the personal assets of the manager cannot be attached by any creditor seeking payment of an LLC debt. Furthermore, no member of an LLC may be held fully liable for any debts of the company.
LLC's can allocate specifically any distribution of income, gain, deduction, or loss among its members. Stockholders of corporations organized under Subchapter S of the IRS guidelines are limited to distributing interest among its shareholders in proportion to holdings of capital.
An LLC may have any number of stockholders unlike an S corporation that is restricted to a maximum of 35 investors. In addition, corporations, partnerships, certain kinds of trusts, and nonresident alien individuals are restricted from being shareholders of an S corporation. LLC's are not subject to these restrictions. LLC operating costs are inherently lower than those of an S Corporation. For further information on Limited Liability Companies and Nevada requirements governing LLCs, contact our offices for a consultation.