Arlington, Virginia, Limited Liability Company Attorney
Virginia Small Business Formation Lawyer
Individuals who create new businesses must select the type of entity that they will use to accomplish their business objectives. The owners of a new business may select from among a variety of types of business organizations, including corporations, S corporations, partnerships, limited partnerships, limited liability companies, limited liability partnerships and business trusts.
Advantages of Using an LLC
The limited liability company (LLC) has become one of the most popular forms of business organization. The popularity of LLCs derives from the combination of advantages available to business owners who operate their business using the LLC as the form of ownership. As a result of such advantages, the LLC is frequently the most suitable vehicle for accomplishing the objectives of individuals starting new businesses. Advantages available to members of an LLC include the following:
- The limited liability provided to the members of the LLC under applicable state law
- The option to elect that the LLC will be classified as a partnership for federal income tax purposes
- The freedom under state law to design a management structure for the LLC specifically tailored to meet the owners’ requirements
- The opportunity to create different classes of membership interests and to make special allocations of the LLC’s items of taxable income and deduction among the members.
Circumstances When Selection of an LLC is Indicated
An LLC is normally the most appropriate arrangement for individuals who intend to form a new organization in a number of different scenarios. For example, the use of an LLC is frequently advantageous for individuals in the following situations:
- Individuals who plan to purchase real property for investment purposes and want to minimize their exposure to liability attributable to ownership of the property
- An individual who wants to transfer interests in investment assets to his or her children by will or by gift and minimize estate and gift tax on those transfers
- An individual who wants to minimize income taxes paid on income generated by his or her investment assets and is willing to transfer interests in those assets to family members
- An individual who owns a business that employs members of the owner’s family and wants to minimize income taxes and employment taxes attributable to the operations of the business
- Accountants, architects, engineers, lawyers or physicians who are planning to join together to own and operate a professional practice
- Individuals who plan to start a new business organization and anticipate that the organization may report taxable losses in the first year (or the first few years) of the organization’s existence
- Individuals forming an LLC that will own one or more assets that are likely to significantly increase in value, especially if the LLC may transfer one or more of those assets to members in the event of dissolution of the LLC.
Owners who use limited liability companies to start new businesses in the situations described above are generally able to obtain advantages not available to owners using other types of organizations. If an individual transfers investment assets to an LLC and transfers interests in the LLC to children, the individual will be entitled to receive discounts in the computation of the value of his or her remaining LLC interests for federal estate tax purposes.
For individuals who own a professional business organization, operating the business as an LLC is preferable to operating the business as a corporation because many favorable tax rules applicable to professional limited liability companies do not apply to professional corporations. For individuals who anticipate that their new business organization will initially generate taxable losses, classification of the LLC as a partnership for income tax purposes will enable the individuals to report their shares of the losses on their personal income tax returns.
Under Virginia law, as a general rule, no member or manager of an LLC is personally liable for obligations of the LLC solely as a result of his or her status as a member or manager. For example, if an LLC incurs an obligation to a creditor, the creditor cannot successfully sue a member of the LLC in connection with that obligation based solely on proof of that member’s membership in the LLC. The principle that immunizes an LLC’s members from liability for the LLC’s obligations is similar to the principle that provides a corporation’s shareholders with immunity from liability for the corporation’s obligations.
For help forming an LLC or for any questions you may have, please contact James D. Fife today to schedule an appointment.