What is a Limited Liability Company
Limited Liability Companies are the relative newcomer to the field of corporate entities. The LLC first began in Wyoming and Florida in the 1970’s. The purpose was to create a corporate structure, which had the benefits of a corporation, without the downside of double taxation. Prior to the LLC this was accomplished by using a subchapter S election with a traditional C-corporation; however, S-Corps have significant restrictions and are therefore difficult to use, particularly in conjunction with other planning. With the introduction of the LLC came a true hybrid with essentially all of the benefits of the Corporation with none of the S-Corp restrictions or the double tax of the C-Corp.
LLC’s and Taxes
Today the LLC has become the standard for almost every form of small business, both active and passive. They are now used in virtually every state and are favored by accountants and attorneys alike for both their tax benefits and corporate protection features.
From a tax standpoint, the LLC is very easy to manage. It utilizes a “check the box” election and may be taxed in one of 3 ways at the option of the members:
- As a partnership (Just like the FLP)
- As a corporation, or
- As a disregarded entity (used when the LLC has only one member)
LLC’s and Risky Assets
When it comes to Asset Protection they are also extremely useful. The LLC is seen as the very best way to insulate otherwise risky assets, before mixing them with other safe assets inside the FLP. For example, if you own an office building or rental property, the LLC is ideal to hold this asset. In turn the LLC may be owned 100% by the FLP. In that case it is considered a disregarded entity and does not even require a separate tax return.
The LLC is also useful for other high-risk assets such as boats, airplanes, and partnership assets like a lake house or cabin, as well as business ventures you or your family might undertake. In all of these cases, the LLC acts as a legal shield in the event the asset, or business itself is the source of liability. At the same time, it protects and shields the assets themselves from other liability as a result of the LLC being owned by the FLP. This is especially true within The Ultimate Asset Protection Plan.