An Overview of Limited Liability Companies

By: Zachary Brown

A limited liability company, commonly referred to as an “LLC”, is a type of business entity that has become popular in the United States because of some of the benefits it provides to business owners.  This article shall serve as an overview of the LLC, what it is, its advantages, and some disadvantages.  Hopefully this article will show why so business owners have elected to start a business using this type of entity.

An LLC is a business entity that is owned by its members and governed by an operating agreement.  A typical operating agreement will, at a minimum, determine how the LLC is organized, how it is to be managed, the financial distributions of the LLC, and how the LLC may be dissolved. 

An LLC shares advantageous traits of other business entities.  For example, LLCs share an advantageous trait with corporations – limited liability.  Limited liability means that a member’s liability is almost always limited to that member’s investment in the LLC.  The result of this, except in rare circumstances, is that a member’s personal assets are not at risk if the LLC is sued or goes bankrupt.

LLCs also share an advantageous trait with other types of entities in the way it elects to be taxed.  The LLC will elect how it wishes to be taxed for federal tax purposes.  Subject to the number of members, the LLC may elect to be taxed as a sole proprietorship, partnership, S corporation, or C corporation.  If the members elect to be taxed as a sole proprietorship, partnership, or S corporation, they are usually considered a “pass-through” entity.  That means the income will be taxed at the individual level on the member’s personal tax return.  This allows an LLC to avoid the double taxation incurred by a C-corporation (a common form of corporation) which are taxed first at the corporate level, then again at the individual level. 

In addition to certain tax benefits and limited liability, there several other advantages associated with forming an LLC.  The LLC is controlled by an operating agreement rather than bylaws, so typically there are no corporate minutes or resolutions, making it administratively more efficient and easier to manage.  When forming LLCs, there are usually no restrictions on the number or type of members allowed (i.e. an S corporation may be a member of an LLC).  Lastly, members have great flexibility in structuring the initial operating agreement governing the LLC.

There are a few notable drawbacks when selecting the LLC as a business entity.  Typically, it is more difficult to transfer a member’s ownership interest in comparison to a corporation.  If the LLC works with international companies, the LLC may be treated as a corporation in the countries where the LLC is doing business.  The annual filing fees for LLCs are more expensive than most other business entities.  Lastly, there are a number of legal complexities with LLCs, so legal issues involving tax, management, dispute resolution, and buyouts tend to arise if the operating agreement that governs the LLC is poorly drafted. 

An LLC is something that a prospective business owner will want to consider when forming a business.  As always, consulting with a local attorney is the best option to make sure this is the right business entity.

Real Estate

The Impact of Easements on Real Property

By: Kyle H. Jensen

A person interested in purchasing real property should always determine whether any easements burden or benefit the real property and the impact such easements have on the real property. An easement is a right held by a person to use another person’s real property, or portion thereof. Generally, easements provide non-owners with the right to have access over, run utilities through, or drain onto a portion of an owner’s real property. Easements can be granted to specific individuals or for the benefit of the owners of other real property not burdened by the easement. An easement burdens real property when the real property is subject to and restricted by the rights granted by the easement. An easement benefits real property when the real property and its owner are benefitted by and entitled to use the rights granted by the easement.

It is important for purchasers to determine if there are any easements that burden the real property they are interested in because such easements may restrict or even prohibit a purchaser’s intended use or development of the real property. If, for example, an access easement runs over a portion of the real property where the purchaser wants to construct a building, the purchaser would be prohibited from constructing such building because it would block the access easement rights granted to another party. There may be ways to work around the easement, such as relocating the easement area or constructing improvements that do not block the easement; however, a purchaser should always resolve these issues before closing to avoid purchasing real property that cannot be operated or developed for its intended use.

It is also important for prospective purchasers to determine if there are easements that benefit the real property they are interested in, or if they need to obtain a beneficial easement, especially when purchasing vacant property. If a purchaser is interested in real property that does not have access to a public road, then such purchaser must either confirm the real property is benefited by an access easement that provides the real property with sufficient access to a public road or require the seller to obtain an access easement. A purchaser should remember that even if the real property has access to a private road, there is no guaranty that the owner of the real property has the right to use such private road unless there is an easement that grants such rights. Furthermore, when purchasing vacant property, a purchaser should determine whether the real property has access to utilities, and, if not, require the seller to obtain utility easements from the adjacent real property to provide necessary access. Accordingly, purchasers should always carefully inspect all easements that burden or benefit the real property they intend to purchase. Failure to do so may result in purchasing real property that cannot be used or developed in the manner the purchaser intended.

Kyle Jensen is an attorney with the law firm Clark, Campbell, Lancaster & Munson, P.A. in Lakeland. Questions can be submitted to thelaw@cclmlaw.com.