A Limited Liability Company (LLC) is an unincorporated organization and is governed by the laws of the state where the company is organized. The LLC generally provides greater flexibility for the management of the organization than Limited Partnerships or Corporations. The members can directly manage the company or they can elect managers similar to a Corporation’s board of directors. If the members elect to participate in the management of the LLC, it does not jeopardize the loss of their limited liability protection.
LLCs, like Family Limited Partnerships are tools for estate and gift tax planning because they permit the donor/parent to discount the value of gifts to donee/children that otherwise might not be discounted if made outright to children. The most common discounts are valuation discounts for minority interest and lack of marketability.
Some of the advantages of utilizing the LLC are as follows:
- The members are generally not held liable beyond their investments for the liabilities and obligations of the company.
- There are no membership restrictions. The company may be formed by other LLCs, corporations, partnerships, individuals and foreign businesses.
- Flexibility regarding the operation of the company, the manner in which it is taxed and how distributions of profit are made to the members.
- A properly managed Limited Liability Company affords excellent lawsuit protection.
- A Limited Liability Company permits the use of valuation discounts which can significantly reduce the size of an estate subject to inheritance taxes.