Starting a Limited Liability Company. - book reviews

Nation's Business, Nov, 1996 by Roberta Maynard

Operating as a limited-liability company (LLC) is an option not only for start-ups but also for companies that have been in business for some time. This type of business organization can provide tax benefits traditionally associated with business partnerships and the degree of liability protection afforded corporations.

Since a 1988 Internal Revenue Service ruling that opened the door to the LLC format, legislation permitting LLCs has been enacted in all states except Vermont and Hawaii.

The benefits of LLC organization include enabling all owners to manage and control a company without causing it to be subject to taxation as a corporation. Moreover, owners of an LLC, like shareholders of a corporation, generally are not responsible for the company's debts and obligations.

General and limited partnerships, corporations, and sole proprietorships can be converted to LLCs, according to Starting A Limited Liability Company (John Whey & Sons, paperback, $19.95). In their book, attorneys Martin M. Shenkman, Samuel Weiner, and Ivan Taback offer advice on setting up and maintaining an LLC.

First, the authors say, be certain that under your state's laws, your type of business or investment can be conducted by a company organized as an LLC. Then obtain the consent of the company's creditors, lenders, lessors, and other affected parties to avoid breaking any agreements.

The authors also say owners and investors should consider costs that may outweigh the benefits of operating as an LLC, particularly the tax consequences. Converting a partnership or a sole proprietorship to an LLC can usually be accomplished tax-free; conversion of a corporation to an LLC is usually a taxable event.