Limited Liability Companies (LLCs) and Limited Partnerships (LPs) are two of the most popular and powerful business entities available today.
Both entities offer the advantages of:
# limited liability
# protection from creditors
# retained management control
# family wealth transfers
# transfer restrictions
# flow-through taxation
# flexibility
It's important to note that there are two separate and distinct uses of the LP and the LLC. One is for the operation of a business and the other is for the holding of assets. In some cases, the two are accomplished by one entity.
LPs and LLCs, as well as General Partnerships, Corporations and Sole Proprietorships, have been used for either purpose. By distinguishing between the two uses - business operations and asset holding - the intent is to arrive at the best possible entity selection for your particular purpose.
Types of Entities
The best way to select the entity most suited for your use is to compare it to other available entities, In addition to LPs and LLCs, the traditional means of doing business or holding assets have been Sole Proprietorships, General Partnerships, C Corporations and S Corporations. You should compare the advantages and disadvantages of each in making an entity selection.
In the process of making your selection, it is important to clarify your strategy during the planning process. The following checklist should be considered:
- the nature of the business to be operated
- the nature of the asset to be held
- protection of family assets and investments
- management control
- the number of owners involved
- estate planning and gifting of assets
- succession of children and other family members into management
- avoiding family disputes
- who may legally obligate the business
- flexibility of decision making
- the need for start-up funding
- taxation
- effect upon an owner's death or departure
- segregation of assets and investments
- privacy of ownership
These and other issues will become apparent as we review your choices. Ask your advisors - your attorney, your accountant or your financial planner - to help clarify the areas that you don't fully understand. Take the time to understand the structural differences among the various entities - and the language of each.
