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The
purpose of a Limited Liability Company/Corporation is to limit
your exposure to an investment or "risk". In theory,
your exposure is limited to your investment or involvement.
There may be significant tax advantages as well as may be used
to transfer assets for estate planning purposes.
You should
discuss this with your Tax Advisor and a Real Estate Attorney.
Chances are, you will get several different answers on the
formation of Limited Liability Companies (LLC) dependent
upon who you talk to.
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The attorney
will tell you the accountant wants you to do this so they can
make more money (a few extra dollars to file additional
papers...) and the accountant will tell you the same about the
attorney. The question is - if you are a small landlord
with a couple of houses - should each one be held in a
distinct LLC? Probably yes- to protect each investment on its
own. So if a tenant falls and decides to sue - they may only sue the LLC -
the independent company - not you nor your other
properties. Each LLC would be set up to handle one
home/unit.
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Use search below to find
information Limited Liability Companies
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ADVANTAGES
See Also: LLC
Disadvantages
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No requirement of an annual general meeting for
shareholders.
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No loss of power to a board of directors.
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Corporations are enduring legal business entities, with
lives that extend beyond the illness or even death of
their owners, thus avoiding problematic business
termination or sole proprietor death.
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Much less administrative paperwork and recordkeeping.
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Pass-through taxation (i.e., no double taxation), unless
the LLC elects to be taxed as a corporation using IRS Form
8832.
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Limited liability, meaning that the owners of the LLC,
called "members," are protected from liability
for acts and debts of the LLC.
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Using default tax classification, profits are taxed
personally at the member level, not at the LLC level.
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Check-the-box taxation. An LLC can elect to be taxed as
a sole proprietor, partnership, S-corp or corporation,
providing much flexibility.
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Can be set up with just one natural person involved.
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Membership interests of LLCs can be assigned, and the
economic benefits of those interests can be separated and
assigned, providing the assignee with the economic
benefits of distributions of profits/losses (like a
partnership), without transferring the title to the
membership interest (i.e., See VA and Delaware LLC Acts).
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LLCs in some states are treated as entities separate
from their Members (See VA LLC Act), whereas in other
jurisdictions case law has developed deciding LLCs are not
considered to have separate juridical standing from their
members
See Also:
LLC
Disadvantages
LLCs are also a
great estate planning tool. So think ahead. You never know.
Limited Liability
Company (LLC). A
limited liability company (LLC) is an entity formed under
state law by filing articles of organization as an LLC. Unlike
a partnership, none of the members of an LLC are personally
liable for its debts (A court may decide otherwise). An LLC may be classified for federal
income tax purposes as either a partnership, a corporation, or
an entity disregarded as an entity separate from its owner by
applying the rules in regulations section 301.7701 –3. See
Form 8832 for more details.
A domestic LLC with at least two
members that does not file Form 8832 is classified as a
partnership for Federal income tax purposes.
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