What is an LLC?

The limited liability company (LLC) is one of the newest forms of doing business in the United States. The LLC is a hybrid between the normal C Corporation and a Limited Partnership. The LLC combines the limited liability of a corporation with the pass through taxation of a partnership.

Accepted in all 50 states as a legal entity it provides tremendous flexibility for business owners looking for the asset protection provided by a corporation with the ease of operation provided by a partnership.

Much like the corporation an LLC protects all members (owners) from individual liability for company debts and actions. A creditor of a corporation could potentially attach corporate stock and gain control of the corporation. A creditor of a LLC cannot become a member and control the company, a creditor of a LLC can only receive an income interest in the company.

In the event a Member is sued and a judgment rendered, the creditor only has an income interest of that Member. This is known as Charging Order Protection for the LLC and other Members.

It is possible for the creditor to end up with no control in the company, no money if the “losing” member does not take a distribution. If the creditor does get control of a "losing" member's distribution he would also be liable for the Members tax liability.

No control, no money and an additional tax liability is not an enviable position for the creditor. Therefore, Attorneys for the creditor are typically anxious to settle as it is in the best interest of their client. Consequently, the LLC combines the best of corporations and partnerships because the LLC offers its members protection from individual liability and, like a limited partnership, allows others to become a member only if the other members unanimously agree.

Is a Limited Liability Company (LLC) for you?

LLCs are made up of members who act in a similar capacity to shareholders in a corporation. Corporations can even be a member or manager of an LLC. This allows greater flexibility than an S-corporation which places restrictions on the number of shareholders and who can be a shareholder. Similar to a corporation, LLCs are considered a separate and distinct legal entity from its members.

If you are looking at starting a new business or you want to convert an existing business to an LLC, then the time to take action is NOW! Stop putting yourself and your assets at risk by operating your business as a sole proprietorship.

If you are thinking of buying rental property or you already own rental property the money you spend to form an LLC will more than pay for the level of asset protection you will receive.

The Limited Liability Company (LLC) is the new up and coming business entity of choice. Accepted in all 50 states as a legal entity it provides tremendous flexibility for business owners looking for the asset protection provided by a corporation with the ease of operation provided by a partnership.

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