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Small Business: Limited Liability Companies

Keywords: Limited Liability Companies; Partnerships; Chapter S and C corporations; Limited Partnerships.

New York has finally joined the majority of states (45 including the District of Columbia) by enacting the Limited Liability Companies Act (LLC for short).

In essence, the LLC combines the most favorable aspects of the Limited Partnership, the Chapter S corporation, the C Corporation and the General Partnership.

Who can and should use the LLC. First, it is a great vehicle for real estate ownership or syndication. Next, the law also permits professional service LLC's such as those comprised of attorneys, architects, doctors, dentists and accountants. Small business owners should also consider this vehicle as a means of asset protection and limitation of liability while enhancing their tax posture.

The major features of an LLC are:

  • no personal liability to Members (that is the term for an "Shareholder/Partner" in an LLC) except to the extent of his/her/its respective investment. Only the assets of the LLC can be attached by a creditor. Your other assets, not in the LLC, are fully protected. Your personal liability is the same as that as an officer, director or shareholder of a corporation;
  • Tax pass through features of a partnership (General or Limited) and "S" Corporation;
  • No limitation on who can be a Member and a more flexible organizational structure (can have all kinds of Members including "foreign" Members, Corporations, ...) Your current partnership (or shareholder) agreement can be the basis for the relationship between the Members;
  • No need for a Corporate General partner as is typical in a Limited Partnership in order to avoid full personal liability of the General Partner;
  • The LLC also permits the use of professional Managers; and,
  • Transfer of the assets of an existing partnership or corporation can be accomplished without creating a taxable event.

For the typical conversion from a partnership (or corporation), both the legal and accounting fees should be relatively low.

If you think we may be of service, please, do not hesitate to contact us.

Lastly, this letter is not meant to provide legal or accounting advice and this firm has no obligation to update this letter.

Ronald S. Kahn

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