Estate Planning, Business Organizations, and Asset Protection

Limited Liability Companies (LLC)

Written By: Jeff Skoubye

A limited liability company is another hybrid of partnerships and corporations. Though quite new in the United States, they have a long history in Europe. This entity provides limited liability for ALL of the “members” while management of the company may remain the same as a general or limited partnership. Its structure is very flexible allowing for a wide variety of situations. Its underlying structure is essentially governed by contract between the members. A filing of Articles of Organization with the State is required, but other formalities are minimal.

The LLC is now used as the primary vehicle for asset protection and estate planning, replacing the limited partnership.

A Single Owner Limited Liability Company:

Limited Liability Companies (LLC) have been growing in popularity as the business entity of choice. An LLC allows the owners to protect their personal assets from business liabilities and yet avoid the double taxation of a corporation. State Law originally limited the use of an LLC to the traditional partnership context where there is more than one owner. However, the Utah State Legislature eliminated the two person minimum requirement. As of May 5, 1997, an LLC may be formed in Utah with only one member.

This change in the law opens the opportunity for many people to use an LLC who previously would not have considered it. In certain situations, using a one member LLC will be advantageous instead of an S Corporation, Sole Proprietorship, or other business form. An LLC has the advantages of limiting the liability of the member of the business but has “flow through” tax treatment. This means profits of the company at the business level are subject to tax only at the individual level.

Because of the “Check-the-Box” regulations, the availability of a one person LLC has even greater potential. Under the regulations, one person entities can be ignored for tax purposes. Therefore, unlike a partnership that must file an informational return, a one person LLC can be ignored and file no tax return at all. All of the income and deductions show on the individual owner’s schedule C as if the entity did not exist.

The one person LLC is ideal for the sole proprietor who want limited liability but who does not want the complexity of running a corporation or filing corporate tax returns. The one person LLC is also ideal for those who wish to invest in Real Estate and segregate their liability on different properties or protect against potential environmental liabilities. With the simplicity and protection of the one person LLC, there is no longer a reason to conduct business as a sole proprietor.