The limited liability company (LLC) is the new kid on the block. It was first authorized in Wyoming in the mid 1970s. It wasn’t until the mid 1990s that all 50 states recognized the LLC as a legal business entity. However, in a few short years it has become one of the favorites used by new entrepreneurs as their entity of choice. There are several reasons for this.

The LLC provides the client with the greatest tax planning flexibility of all business entities. It may be taxed as a C corporation, an S corporation, a partnership, a sole proprietorship or be a disregarded entity and not be required to file a tax return at all. When used in conjunction with a C corporation, an LLC will provide our client with the greatest tax flexibility as well as the most pretax business expenses.

Additionally, the LLC may be formed in a number of ways. It may be a "member managed" LLC. In this case the owners of the LLC (the "members") are also the officers and directors. All of the members have managerial responsibilities to the LLC. It may also be formed as a "manager-managed" LLC. In this case one or more persons or entities act as the officer and director of the LLC. A member may also be a manager, but it is not required. Nor is it required that the manager also have an ownership interest in the LLC. When one or more managers have been designated, the members merely become passive investors in the LLC. They have no managerial rights or responsibilities at all.

Like the limited partnership an LLC provides tremendous asset protection for our clients. In fact, the LLC provides greater asset protection than the limited partnership. Neither the members nor manager of an LLC is liable for the debts and obligations of the LLC. So, if the LLC is sued and you are a member (the name used for the owners of the LLC) you may lose your investment in the LLC, but you are not liable for anything above that investment. The judgment creditor cannot attempt to collect the judgment against the LLC from the member. The same is true of the manager in that, statutorily, the manager is not liable for the debts and obligations of the LLC.

The members of the LLC are protected by the "charging order" protection. In the event of a judgment against a member of the LLC, the ownership interest is protected. A court may not order the member (the judgment debtor) to give his/her ownership interest to the creditor. The Court can order the LLC to pay the judgment creditor the profits which are due the member (the judgment debtor). But, the ownership interest is never at risk. And, if the manager determines not to pay any profits to the members, the judgment creditor receives nothing, but still must pay taxes on the profits that he/she is otherwise legally entitled to receive under the terms of the “charging order.” So, the judgment creditor does not receive any ownership interest, no does he/she receive any profits. But, he/she must still pay the taxes on the money he/she did not receive.

Contact CSS Nevada for additional information to determine if an LLC is the best business entity for you.

Disclaimer: The content on this website has been prepared for informational purposes only. It is not intended to be nor do we constitute legal or tax advice. Each situation with relation to corporate and clients needs are unique and must be consulted directly on an individual (one to one) written contract basis with Corporate Support Services of Nevada, Inc. (CSS NEVADA). Content within website and videos are only examples of strategic asset protection strategies.