A limited liability (LLC) is a non-corporate business entity. It affords all members limited liability protection. Members can participate in management and control. LLC’s can be structured so that they are taxed as a partnership rather than a corporation for federal income tax purposes. By combining limited personal liability with partnership tax classification, the LLC is an effective vehicle of choice attributes which are unavailable to corporations, partnerships or limited partnerships thereby providing asset protection and tax savings opportunity to the client.
LLC’s are most often used for client’s real estate investments. The LLC offers liability protection with favorable partnership tax treatment by offering individual tax flow-through treatment of tax items of income, gains, losses, deductions, and credits among its members in accordance with the LLC partnership agreement.
There are no major differences in the federal income tax treatment of LLC’S and limited partnerships. The principal advantage of the LLC the limited partnership is the limited liability protection afforded all LLC members and managers. Limited partnerships are required to have one or more general partners, who are personally liable for partnership debts and obligations. The LLC affords limited liability protection to its members regardless of the extent to which they participate in management and control of the LLC business affairs. However a similar result might be obtained by use of a limited partnership with a corporate general partner controlled by the limited partners.
LLC’s are very effective and useful Asset Protection vehicle. If the IRS continues to ease its positions concerning transferability and continuity, and if states continue to adopt uniform LLC statutes then the LLC will become a popular vehicle for clients to accomplish their asset protection and tax planning goals.