Corporation & Limited Liability Company (LLC) Case Studies
Real Estate
Example: Let’s say you want to buy some rental property but you know how risky it is to have tenants. So you decide to form an LLC and have the LLC buy the property. This prevents you from being held personally liable if the LLC were ever sued.
Example: You already own a corporation but you want to buy some property personally that the company might be using in the future. So you form an LLC and have the LLC purchase the property. In a few months the corporation decides it needs that property to expand, so the corporation leases the property from the LLC. This allows you to sell the property in the future without having to pay the additional tax generated by selling a piece of property in a corporation.
Operating Business
Example: A small group of family, friends or business associates decide to start a small consultation firm. Instead of forming a partnership which adds risk to everyone involved, they decide to form an LLC. This provides limited liability to everyone. In addition, some people are buying ownership with cash while others are going to be providing their services. Since they can adjust the distribution anyway they want, they can say the people who contribute cash are going to get a higher percentage of distributions than the people who are committing services.
Investment Club
Example: John is a W-2 employee who, along with some family members, has decided to start an investment club. They have decided to pool their money and buy real estate, stocks and maybe some options. They did some research on which business entity would suit their needs and in the end they decided on an LLC.
All the members wanted to have a say in which investments the club would participate in. An LLC allowed for the flexibility in management they were looking for. It is also a lot easier to transfer assets in and out of an LLC vs. a corporation. With a corporation you run into a capital gains issue when you sell property. Because an LLC can be taxed as a pass through entity, you can greatly reduce your capital gains.
Holding Property
Example: Susan had invented a proprietary software program that allowed people to search the internet twice as fast. She knew it would be a few years before she would actually sell the software to another company, as she was still working out the kinks and wanted to make sure she got the right deal. So she decided to place the patent in an LLC which allowed her to plan for future tax saving benefits.
Due to their relatively inexpensive start-up costs and ease of management, the LLC serves as a great tool for holding real estate, trademarks, patents, and other assets.
LLC’s are also great tools for small operating businesses. While LLC’s don’t provide some of the same fringe benefits as a C-corporation, the flexibility and simplicity of ownership make it the ideal tool for a small company looking for asset protection.
*This information if for general purposes only. All that we do is submitted and performed with the understanding that we are not engaged in rendering legal, accounting or other such professional service. If legal advice or other expert assistance is required, the services of a professional should be sought.
*All that we do is submitted and performed with the understanding that we are not engaged in rendering legal, accounting or other such professional service. If legal advice or other expert assistance is required, the services of a professional should be sought.
