Why we love the LLC
The limited liability company (the “LLC”) has gone from an uncertainty when introduced in Indiana in 1993 to the entity structure of choice for many business lawyers. The LLC is a great entity choice because it offers all the asset protection that a corporation offers its owners and officers but with more flexibility. Here are six reasons you might elect to form an LLC rather than a corporation:
#1 - Lower Maintenance
There is less work and fewer documents required to maintain a limited liability company. Unless the Operating Agreement of the LLC requires annual meetings, it is not necessary for the owners (called Members or Interest Holders) to meet annually to elect directors or officers, as is required by Indiana law for a corporation.
#2 - Flexible Company Governance
An LLC can be structured to resemble a sole-proprietorship, a corporation, a general partnership or even a limited partnership. An LLC can even serve as a joint venture between two or more other entities.
#3 - Income Tax Treatment
An LLC is ordinarily taxed as a partnership. However, if properly structured, an LLC might be taxed as a sole proprietorship (the disregarded single-member LLC), a C-corporation or even as a small corporation under the “S-election” tax rules. Another great advantage is that an LLC taxed as a partnership can transfer capital assets to another LLC with the same ownership without triggering a tax, unlike the corporation.
#4 - Charging Order Protection
An LLC provides a unique form of asset protection that is not available to owners of a corporation. “Charging order protection” refers to an order issued by a court that enables a member’s creditors to seize the income that would be distributed from the LLC to the member, but the creditor could not acquire the member’s ownership interests in the LLC. This additional asset protection feature is available only to multiple-member LLC’s.
#5 - Buy-Sell Agreements
Given the LLC’s roots in partnership law, it seems very natural to include basic buy-sell provisions in an operating agreement. As LLCs share many traits of partnerships, most operating agreements include some provisions addressing transfers of ownership interests. Our law firm routinely includes other provisions in operating agreements that help make company governance simpler, more productive and more orderly.
#6 - Converting to a Series LLC
An LLC can be easily converted to a Series LLC, which then offers even greater flexibility and asset protection by isolating separate business operations, locations or assets in separate series.
