Series LLC – Questions and Answers


Diane Kennedy and I did a webinar recently on Series LLCs. You can see the replay for a short time over at www.ustaxaid.com/series. And check out our limited-time offer that incudes having a Series LLC formed for you, here: http://www.ustaxaid.com/shop/Series-LLC-Year-End-Special.html

We had a bag full of questions and ran out of time. So, I’m answering all of your questions in my blog. And, of course, if anything you read this week brings on another question, ask away!

Series LLC versus C Corp

Question:         How about creating a Series LLC for my family assets. Is this workable versus using a C Corp?

Answer:           I’m not sure why you would want to use a C Corporation to hold assets, even family assets. It will cost you far more in taxes and won’t give you the same level of asset protection that using an LLC or a Limited Partnership. Remember, when you take assets out of a C Corporation (or an S Corporation) you are creating a taxable event for yourself – especially if you are transferring ownership to yourself. You wind up paying tax on your own stuff!

Personally I think a Series LLC is an excellent vehicle to hold family assets. It lets you split things up easily, without any negative tax consequences.

Series LLCs and Single Owner LLCs – Corporate Veil

Question:         What is the latest regarding the ability of courts to look through and pierce the veil on single-owner LLCs? Does that apply to Series LLCs owned by one person, too?

Answer            We’ve seen a couple of cases in the last few years that have thrown the idea of single-owner LLCs into question. What has happened is that courts have not respected the asset protection ideals and have allowed a creditor to treat the LLC and its assets as something that can be seized to pay off a judgment.

But in both of the cases people talk about, there are backstories that make the decisions understandable – at least to me. One case involved personal bankruptcy of the owner. The owner claimed everything inside her LLC was safe from the bankruptcy trustee. The court found otherwise, and said that because there was no other owner to protect, there was no reason to not let the bankruptcy trustee at her assets to satisfy claims.

In the other case, an LLC owner had been convicted of defrauding people out of hundreds of thousands of dollars. The government was trying to recapture some of the funds to give back to the victims. The LLC owner claimed that the funds as untouchable because they were inside single owner LLCs. So you’ve got the proceeds of a crime being hidden from the government.

Personally, I think you need to look at all of the circumstances, but I think that one-owner LLCs generally are protected from 3rd party claims. Where you have and can expect to have issues is where there are criminal activities involved, or with bankruptcy. You can also expect issues if the IRS is involved, too. If you have an LLC that owes taxes, the IRS will come looking to you, as owner.

At Smart Business Incorporation, we specialize in helping investors and business owners develop structures to run their businesses, protect their assets and keep as much of their earnings as possible. If you want to know how to best structure your next business, visit our website or drop us an email at info@smartbusinessincorporation.com. We’ll be glad to help.

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