Corporations and limited liability companies are an extremely popular form of business organization, mostly because the liability of its owners does not normally exceed the amount they invested. These two legal entities are essentially the same as far as asset protection, tax savings, and structure. However, a limited liability company (LLC) does not require annual report filing with the Arizona Corporation Commission or annual filing fees. These LLCs are a much more popular and beneficial entity to form. Both entities have the same S-Corp tax savings benefits. This asset protection protects the individual owners and their personal assets. These entities also provide a relatively easy way to transfer ownership interest. The law makes a corporation or an LLC a legally separate entity from the people who own it and manage it. Corporations and LLCs exist only by the authority granted by the state. Therefore, it’s important to follow the operation rules of a Corporation or LLC to ensure that the benefits will continue to exist. This is extremely important because Arizona recently enacted the New Arizona Limited Liability Act for all new LLCs, effective 2020. It is extremely important to know, understand and comply with the New AZLLA. See (LLC) for more on this topic. The process of forming these entities is relatively easy and straightforward, but asset protection and tax planning are critically important to understand in order to avoid undue liability or tax planning to reduce tax liability. It is essential that you contact us to discuss these various options and the resulting asset protection and tax savings before proceeding forward. Please contact ALTA Estate Services or feel free to call us at (520) 797-1400 to better understand the differences and benefits of these various entities for asset protection and tax planning.
Every state has enacted laws permitting the formation of a Limited Liability Company (LLC) as an alternative to traditional corporations, general partnerships, and limited partnerships. LLCs have become popular because they offer flexibility in management and other matters, as in a general partnership, while providing the benefit of limited liability for investing members, as in a corporation. Limited liability companies are formed and established much like a corporation. The founders must prepare and file the proper documents with the state, according to the state’s limited liability company law. These laws normally state that the LLC can have powers like a corporation. However, some states restrict LLCs from certain activities, such as banking, insurance, and professional services. LLCs have members, similar to a corporation’s shareholders. These members must have a written agreement, much like a partnership agreement. The IRS has also determined that an LLC meeting certain requirements might be taxed as a “pass-through” entity like a partnership or S corporation. Many of the restrictions placed on S corporations, such as limits on the number of shareholders, do not exist for the LLC. LLCs also differ from regular corporations in other ways. For example, LLC laws do not permit the LLC to have unlimited life. Most laws restrict LLCs to a maximum life of thirty years. Also, compared to shareholders in a corporation, LLC members are subject to different rules with respect to transferring their membership interests, and withdrawing and distributing profits. The LLC is a relatively new entity. Some matters remain unsettled, such as the treatment of an LLC by state law when it was formed in another state. You should consult your attorney to determine if an LLC is appropriate for a given business enterprise.
NOTE: Arizona has recently enacted the new Arizona Limited Liability Company Act (AZLLCA) which encompasses certain new restrictions on formation and organization in order to retain (and gain) certain asset protection benefits and tax savings. The choices of Member-Managed LLC or Manager-Managed LLC could have a huge impact on your asset protection. It is essential that you contact our office at (520) 797-1400 to better understand these requirements.