The engineers at Toyota, Honda, Ford, Lexus, and Mercedes have designed hybrid automobiles, which combine the best advantages of conventional fuel and electricity.
We tax attorneys created our own version of a hybrid a few years ago. For many years we had dreamed of something combining the liability protection of a corporation and the flexibility of a partnership. Finally we created the limited liability company, or LLC.
The greatest advantage of the corporation is limited liability - a shareholder may lose his investment in the corporation if the corporation is sued, but generally he may not be sued personally.
The corporation has limitations. Among other things, shareholders of the same class (common or preferred) must generally be treated equally. A corporation, unless it elects to be taxed as a partnership (by means of a so-called Subchapter S election) has two layers of taxation - gains are taxed at the corporate level, and again when they are distributed to the shareholder.
A partnership consists of two or more persons or entities joined together to carry on business for profit. (In Germany, the partnership, or offene handelsgesellschaft, may have just one partner. I have not figured out how, logically, that can be, but I have forgiven the Germans, since they invented Black Forest Cake, which I enjoy.)
A partnership does not pay tax at the partnership level - the partners reflect the profits and losses on their individual returns. Partners in a general partnership are each fully liable for the debts of the partnership, which can be a very serious problem in many cases.
The limited liability company is taxed like a partnership, but members are not personally liable for LLC debts. The LLC may have only one member or many members.
A LLC has enormous flexibility in allocating gains and losses and depreciation. For instance, all of the income might be allocated to one member until he recovered his investment and all of the depreciation might be allocated to another member. This flexibility is not available in the corporation.
The LLC is usually the vehicle of choice for holding real estate and for businesses in Massachusetts. We will be happy to work with you in establishing an LLC to meet your needs.
