A limited liability company (“LLC”) is a type of business organization in which its members can enjoy the limited liability advantages offered by corporate business structures, while at the same time, can employ the management style and obtain the tax benefits of a partnership.
Unlike members of a general partnership, however, the members of an LLC cannot be held personally responsible for any liabilities or debts incurred by the business. This means that any legal actions and/or creditor claims must be filed directly against the LLC, as opposed to its individual members.
Members of an LLC also have the option to choose how they want to be taxed. For instance, the main issue with corporations is that both the business and its owners can be taxed. This feature of C corporations is known as “double-taxation”, which exists because of corporate tax laws. In contrast, there are no LLC tax laws. Thus, LLC members can avoid the double-taxation problem by electing to be taxed as a partnership or S corporation.
These characteristics, namely, the limited liability protections and tax benefits, are what make an LLC a particularly useful business structure when it comes to owning and transferring the property and/or assets of an LLC. For instance, suppose an LLC purchased property and the deed to that property was in its name. The property is then transformed into apartment units that get rented out to tenants.
Now, if one of those tenants has a party and a guest gets injured on the premises, the guest can sue the tenant, but it is more likely that they will sue the LLC for their injuries. Since an LLC formation provides its members limited liability protections, the members themselves cannot be personally named in the guest’s lawsuit and thus cannot be held responsible to pay for their damages. Though the LLC can be named in the lawsuit and held liable for damages.
In continuing with the rental property example, this also means that any income generated from tenants renting out those apartments can bypass double-taxation laws and simply be claimed on personal tax returns because of the tax benefits of LLCs. Additionally, since individual members must file taxes for LLC revenue, this also will make it easier if they decide to gift LLC property interest to their family members in the future.
One other important trait that has not yet been mentioned, is that an LLC is considered a person for legal purposes (i.e., an entity). Therefore, LLCs can do many of the same things that a person can do, such as enter into a contract, file a lawsuit, and of course, own and purchase property. Accordingly, the answer to the question of who owns the property of an LLC is the LLC itself, not its members.
Who Can Transfer Property in a Limited Liability Company?
As previously mentioned, an LLC is capable of owning and transferring property. However, in order to purchase, own, or transfer property out of LLC entities, a real person must be granted legal authority to sign the actual property deed and title. Thus, some individual associated with the LLC must be appointed to carry out property transactions, or else the property transfer will be considered invalid.
The following parties can be appointed to transfer property out of LLC entities:
- Members of the LLC: In general, a deed to transfer property owned by the LLC must be signed by all LLC members. There is one exception to this rule. If the LLC has a provision in its operating agreement that specifically states that not all members are required to sign a deed to lawfully transfer LLC property, then the signature of only some members may make the deed valid.
- An LLC operating agreement can also provide the names of specific individuals that it authorizes to sign property transactions on its behalf.
- Managers and Officers: If the LLC operating agreement created and assigned managerial or official roles to certain individuals, they may be given authority to sign off on a property transfer as well. In this scenario, a deed used for an LLC property transfer must be signed by either two managers or two officers (whichever applies).
The parties listed above are the most common groups of individuals who are typically given authority to sign off on LLC property transfers. However, these groups may change based on the terms of a particular LLC’s operating agreement. Authorized parties may also vary according to state law requirements.
Finally, it is important to note that transfers of LLC property and/or assets can only be carried out to satisfy the debts of the LLC. This is especially true when a transfer involves large amounts of LLC property or assets. Thus, it follows that an individual LLC member may never transfer property for personal gain.
How Are Members of a Limited Liability Company Related to The Property?
In the event that property of the LLC is transferred or an issue arises over the ownership of the LLC property, it is important that LLC members know their property rights. One significant right that LLC members enjoy is that regardless of whether the transaction involves ownership or a transfer of LLC property, all LLC members must share in the profits received from that transaction.
LLC members also have a right to the interest of all LLC property and/or assets. Thus, although individual members may not personally take any actions concerning the property or assets, their interest in that property or assets can be transferred to others or passed down as an inheritance.
One final important item of note regarding LLC members’ property rights is that a single member is only allowed to transfer their interest in the LLC property or assets if they obtain the consent of all other LLC members. However, this action is rarely the type of issue that leads to a legal dispute.
Do I Need an Attorney for Help with LLC Property Matters?
As is evident from the above discussion, LLC property matters can become quite complicated due to the intricacies of the applicable law and complex legal procedures. These matters can pose even greater challenges when they involve transferring the ownership of LLC property.
Thus, if you have any questions or concerns regarding LLC property or need assistance with a particular LLC property matter, it may be in your best interest to contact a local business lawyer for further legal guidance. An experienced business lawyer will be able to provide specific and clear answers to your personal LLC property questions.
Your lawyer can interpret all relevant laws and explain what rights you have as an LLC member. Your lawyer can also review any contracts related to the LLC and determine whether there are any provisions that could affect your rights and/or legal matter. In addition, your lawyer will be able to identify both the risks and rewards associated with a certain LLC property transaction, and can provide advice about the next steps you should take.
Finally, if you are in the initial stages of forming your business, you should also speak to a business lawyer about the benefits and disadvantages that LLCs can offer its members. Alternatively, if you already formed an LLC and you and your members want to convert to a different type of entity, your lawyer can also recommend another business structure that better fits the needs of your business.