Compared to the Family Limited Partnership (FLP), the Limited Liability Company (LLC) is the relative newcomer to the field. LLC’s began in the 1970′s in Wyoming and Florida. They create a corporate structure, and give the benefits of a corporation without the downside of double taxation. Prior to the LLC this was accomplished by using an S-Corporation; however, S-Corps have significant restrictions and are therefore difficult to use. With the introduction of the LLC came a true hybrid with essentially all of the benefits of the Corporation and none of the S-Corp restrictions or double taxation downside.
The LLC has the exact same tax options as the FLP. The LLC does not use the term shareholders, but rather “members.” In the standard LLC structure there is only one class of member. This was meant to mirror the corporate stock ownership and creates a majority rule type of management. While this can be changed through careful drafting, it is this distinction that becomes important when comparing it to the Limited Partnership for use in Asset Protection Planning.
There is much confusion today about which structure is most desirable when it comes to the area of Asset Protection. While both are useful, their differences should not be overlooked. In particular, there is a distinct advantage to the Limited Partnership structure when it comes to designing a truly effective Asset Protection Plan.
Critical Differences Between FLP & LLC
Under the laws of Arizona, a model state and considered one of the very best jurisdictions for the purpose of Asset Protection, there are the following critical differences between an FLP and an LLC:
- An FLP requires “unanimous consent” for dissolution as opposed to a majority in interest (51%) for an LLC. This restriction is advantageous in both a creditor situation and a discount valuation scenario.
- It is much easier to obtain “Administrative Dissolution” in an LLC. This is a significant disadvantage with respect to Asset Protection. Among the grounds for administrative dissolution in an LLC are:
- Failure to make required amendments to the articles of organization,
- Failure to make required publication,
- No statutory agent or registered office for a period of 60 days and
- Failure to notify the corporation commission of a change in statutory agent or registered office within 60 days.