LLC: Limited Liability Company
Family Limited Partnerships
Partnerships can either be General or Limited Partnerships. In its most basic form, the general partnership, the income and losses of the partnership business flow through directly to the partners and are not subject to tax at the partnership level. However, all the partners are jointly and severally liable for the debts and judgments of the partnership. Of course, limited partnerships are employed by many to retain these tax benefits but reduce the liability of the partners. Yet, as every limited partnership requires at least one general partner, this leaves at least one person with complete exposure for partnership debts and judgments. One common mechanism is to form a special purpose corporation with finite assets to hold a small partnership interest as general partner. While typically more cumbersome to operate than an LLC, a key advantage of a Limited Partnership in an estate planning application may enable a family member to greatly reduce projected estate taxes by using discounting techniques to gift assets to a lower generation, while reserving complete control over such assets during one’s lifetime
Comparison Chart Corp v. LLC v. FLP
|
C- Corp |
S-Corp |
LLC |
FLP |
Annual Minimum Tax (Companies doing business in California) |
$800 |
$800 |
$800 |
$800 |
Types of Business |
Any |
Any |
No Business where a professional license issued by the State of California |
Generally family owned businesses or Real Estate or Securities holdings |
Tax Structure |
Double taxation |
Similar to Partnership- Pass through to individual shareholders |
Similar to Partnership- Pass through to individual members |
Similar to Partnership- Pass through to individual partners |
Separate Tax Return |
Yes |
Yes- Informational |
Yes- Informational |
Yes-Informational |
Annual Registration Fee |
$25 |
$25 |
$20 |
$25 |
Limited Liability for Officers/General Partners/ managers |
Yes |
Yes |
Yes |
No – General Partner remains fully liable for all debts and obligations of the Partnership, therefore usually you also need to form a special purpose corporation to act as General Partner. |
Limited Liability for Shareholders/ Limited Partners and members |
Yes |
Yes |
Yes |
Yes |
Annual Minutes Required |
Yes |
Yes |
No |
No |
Discounted Gifting Avail. |
No |
No |
Yes |
Yes |
LLC Fee (CA Only) |
None |
None |
Gross Rev $250,000 - $499,999 $500,000 - $999,999 $1M - $4,999,999 $5M + |
None |