Form a Limited Liability Company
Form a Limited Liability Company. The advantages and disadvantages, and what you must watch out for.
Definition Limited Liability Company
Limited liability companies are another important form of asset protection. They can only be used for a single owner.
Limited Liability Companies allow two levels of ownership – the first level is the active ownership level, where active owners – called managing members – have 100 percent control of the entity and its assets. The second level is the passive ownership level, where passive owners have little control of the entity and limited rights.
Through a LLC, you are eligible for pass-through taxation, meaning that you would not be liable for income taxes. They also allow you to share income.
Limited Liability Company Formation
Why form a limited liability company? They are excellent ways to protect assets, as they prevent creditors from seizing assets housed in a LLC. Limited Liability Companies are protected under the Uniform Act provisions, which state that a creditor of a LLC member cannot reach into the LLC to take partnership assets.
Advantages of Limited Liability Company
The Limited Liability Company is a better choice than the Family Limited Partnership if you would be owning ‘dangerous’ assets – that is, assets more likely to create liability. The most common dangerous assets include real estate, cars, boats, recreational vehicles, interests in various businesses.
In contrast, safe assets refer to those unlikely to be legally liable: cash, equities, bonds, mutual funds, life insurance policies, checking or savings accounts.
Make use of multiple FLP and LLC arrangements
Make use of multiple FLPs and LLCs in different states to title your assets, as that makes it even more difficult for your creditors to attack your wealth. They would have to conduct more investigations, file more court motions, even travel to several different states – the hassle involved would deter most creditors and convince most of them to negotiate a more convenient form of settlement.