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Monday, May 12, 2008

Limited liability companies: The entity of choice for Connecticut businesses.

There is no question that limited liability companies (LLCs) have become the dominant vehicle for new businesses being formed in the State of Connecticut. In fact, in 2006 formation of new LLCs outnumbered corporations by six to one! LLCs have become extremely popular because they combine the major advantages of two other types of entities: the limited liability of corporations and the pass-through tax treatment of partnerships.  Limited liability companies are easy to set up and maintain, and very flexible in structure.  There is virtually no limit on the different types of ownership and management structures that can be established.  LLCs also benefit from pass-through tax status, meaning that there is no tax at the entity level and all income and loss is reported on the owner’s tax return. As a result, income tax filings are much simpler. LLCs with only one owner do not have to file a separate tax return for the LLC, but instead report everything on Schedule C of their personal tax returns.
 
Since its introduction in 1993 the LLC has also become the entity of choice for real estate ownership and development. The low cost and flexibility of the LLC allows real owners to set up a new company for each property, and even for separate parcels within the same development. This allows the owner to protect his or her personal assets from liabilities associated with the real estate business. And it has the added advantage of insulating each property or project from liabilities associated with other projects or properties.
 
Limited liability companies can now be set up with one member, two members, or many members. The ownership can be as simple or as complicated as complex as the parties desire to structure it. There is virtually no limit on the different types of ownership structures. The management of the LLC can also be set up in a variety of ways. There can be one person in charge of the business, or all of the owners can be involved, or anything in between.  
 
There are still some situations in which the use of a corporation or other entity may be preferable to a limited liability company. And although setting up a LLC requires fewer documents and formalities than a corporation, there are still key documents that need to be prepared and executed. For this reason it is important to consult with an experienced attorney before setting up any new business, including a real estate business.



The Law Office of Thomas J. Dufour, LLC assist clients throughout Connecticut including New Haven, Milford, Waterbury, Bridgeport, Shelton, Branford and Hartford.


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