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|New Jersey Business
Lawyer | Business Formation
| LLC Limited Liability Company | IRS Tax | Business
Purchase | LLC Lawyer
People Overpay the
Government...But Certainly Not our clients!
J. Cappuccio, J.D., LL.M. (Tax)
Counsellor at Law
1800 Chapel Avenue West, Suite 128
Cherry Hill, New Jersey 08002 US
(856) 665-2121 Fax (856) 665-9005
key to happiness is learning to
expect, not demand, from life.
Small and Emerging Businesses become more profitable!
Businesses Are Most Suited to Be LLCs?
Any business may lawfully be conducted as a Limited Liability Company
in New Jersey and in most states. Most of the state regulatory agencies
bodies have permitted licensees and members to become LLCs rather than
simply professional corporations. The following are the types of
entities that are best as LLCs:
though a Limited Liability Company, similar to a professional
corporation, cannot limit the professional from personally committed
malpractice, Limited Liability Companies are effective in limiting the
liability to professionals for non-professional contractual
- Joint Ventures.
Joint ventures between
corporations or a corporation and sole proprietor are best organized as
Limited Liability Company. This allows the pass-through entity status
as well as a limitation on liability. If, however, one of the joint
ventures is a "C" Corporation, a pass-through entity may not be desired
due to the dividend exclusion for "C" Corporations. There is no
advantage for a joint venture to be a partnership.
- Real Estate
Activities. Real estate
investment and development businesses are ideally Limited Liability
Companies. Typically, small real estate investments are inappropriate
as a Limited Partnership because all of the partners exercise
management and control. The Limited Liability Company allows the
members to exercise management and control and participate in the
operations of the investment without risking loss of the liability
Businesses. Start-up businesses
are most likely better as a Limited Liability Company than any other
form of entity. The tax pass-through of initial start-up losses can be
very advantageous. The question frequently becomes a choice between a
sole proprietorship versus Limited Liability Company.
A closely-held business in the form of a Limited Liability Company can
be more easily transferred to the next generation over a period of time
than an "S" Corporation or "C" Corporation. Because the Limited
Liability Company has all the flexibility and options of a Partnership,
the older generation can retain control while slowly passing some of
the interest to the younger generation. Ultimately, as the older
generation members of the LLC retire, control can be passed to the next
generation while beneficial ownership can be retained by the older
generation allowing the step-up in basis for estate tax purposes.
Pass-Through Entities. Other pass-through entities
are better as an LLC than an "S" Corporation or Partnership. These
includes the following:
- Construction and Contracting
- Farming Operations
- Investment Companies
Are Limited Liability Companies a Poor Choice?
- Non Pass-Through
Entities. When there is a need to retain income in
the business, a "C" Corporation is better than an LLC..
- Phantom Income
When a business is retaining its earnings to invest in machinery and
equipment, pass-through entities such as an LLC could result in phantom
income. A "C" Corporation is a better choice.
- Pension and
Retirement Plans. A "C"
Corporation is better for many retirement plans. In addition to
maximizing retirement plan benefits include borrowing from such
retirement plan, a "C" Corporation would probably be better than an
Businesses. Although for management purposes an
LLC may be appropriate, the foreign government may have unfavorable tax
Comparison Between S Corporations and
LLCs. Federal Income tax advantages of Partnerships compared to S
2008 Ronald J.
Cappuccio, J.D., LL.M.(Tax) 1800 Chapel
Avenue West, Suite 128 Cherry Hill, NJ 08002 USA (856)