Corporations have been around for many years, but LLCs, or limited liability companies, didn’t become a preferred method of organizing a business until the late '80s to mid '90s. Individuals or even corporations or limited partnerships may choose to become LLC members during the formation of an LLC. Although most states allow sole-member LLCs, they are often formed with two or more members.
Husbands and Wives
A husband and wife who own vacation or other rental property may want to protect themselves from liability in the event of an injury or other occurrence on their rental property. An LLC should provide them with that liability protection, and may also offer certain tax advantages over the formation of a corporation.
Two partners who operate a business may choose to limit their liability in the same way by forming an LLC to manage their business interests. By operating the business in their individual names, they become personally liable for all debts of the business, and those debts may attach to their personal assets. Operating their business as an LLC, however, should protect their personal assets from creditor attacks, while avoiding the more formal corporate structure which requires annual meetings and updated minute books.
Corporations and LLCs
While an LLC may be comprised of two individuals, businesses are not prohibited from joining together to form one LLCs. A corporation may join with an LLC to form a new LLC in order to operate a business venture that is separate and apart from current investments. Although both businesses may be LLC members, they may choose to appoint one as manager in the LLC's articles of organization or operating agreement. This manager will then directly manage the affairs of the LLC; the other business may merely be a member for financial investment purposes.
IRA and LLC
The owner of an IRA may choose an aggressive investment strategy to continue to fund the IRA by becoming a member of an LLC that will invest in a lucrative business venture. She may already have a spouse who is a member of an existing LLC, and may wish to avoid violating rules prohibiting certain related transactions involving her IRA. While the IRA may not become a member of her spouse’s existing LLC without violating those rules, it may be allowed to invest alongside the existing LLC as joint members of another LLC, allowing the intended financial investment without invalidating the IRA. The IRA owner should contact an attorney and financial planner for advice before allowing the IRA to become a member of an LLC.