An FLLC is a Limited Liability Company in which family members or family controlled entities own a majority or all of the Limited Liability Company interests. These family members usually include a parent or parents, one or more children, and often include trusts created for children or descendants of children. The phrase “Family Limited Liability Company” or “FLLC” cannot be found in any statute on business entities. It is merely a term of art; an FLLC is merely a Limited Liability Company sanctioned under state law that is treated as a legal person.

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How Does the LLC Identify Itself?

The LLC must hold itself out to the public at all times as a Limited Liability Company. All letterheads, billheads, advertising, business cards, and telephone listings should use the LLC’s registered name.

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How Does the LLC Conduct Business?

A Limited Liability Company acts through its Members, Manager if any, or through agents properly appointed. When action is taken to sign a letter, contract, or check for the LLC, or when the name of any person is printed on a business card, you should make certain that the capacity of the individual signing or named, is clearly indicated. Agreements and other documents for the LLC should be signed in such a way as to identify the LLC, the signor, and their authority to sign for the entity. Do not sign in your individual capacity or you might acquire personal liability!

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What About LLC Bank Accounts?

Establish a checking account for the LLC. That account, and any other accounts of the LLC, should be established in the LLC’s name. The appropriate responsible LLC officials in their official capacities and on behalf of the LLC should execute signature cards for the accounts. Always observe the distinction between Member, Manager, or individual signatures, even in cases where the individual involved is required to be a signatory (for example, where an individual will be a guarantor of the LLC’s obligations and will sign in his or her individual capacity).

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What About Property Transferred to the LLC?

It is extremely important that LLC property is clearly understood to be that of the LLC and not that of any individual member, manager, or officer. The LLC is not simply a separate pocket of its members. It is a distinct legal entity. The failure of the members, managers, and officers of a Limited Liability Company to recognize that their LLC’s cash or other assets are not theirs could cause significant and unpleasant encounters with the IRS, and could invalidate asset protection features of the LLC. Any assets transferred to the LLC become the property of the LLC and must be treated as LLC property. Insurance policies for fidelity bonds, liability insurance coverage, and property coverage should be obtained in the name of the LLC. If there will be liability coverage for individuals as well as for the LLC, the individuals should be added as additional insureds.

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Does Transferring an Asset Into the LLC Create Tax Liability?

There is normally no tax owed when property is contributed to the LLC in return for an LLC interest. The transfer of assets to an LLC in exchange for an LLC interest is called a capital contribution. If someone sells property to the LLC, however, the seller must pay any taxes (such as capital gains tax) resulting from such sale.

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How Does the LLC Transact Business?

All important transactions of the LLC, such as major business agreements, loans, employment agreements, leases, and buy-sell agreements, must be considered and approved by formal action of the Members unless authorized to a Manager. If there is a pattern of individual action without the necessary formalities, the members involved risk a legal determination that they were acting and are liable as individuals, despite their use of the LLC name. The end result could be a loss of tax benefits and asset protection.

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Should Members Have Meetings?

Since the LLC is a business, members should know the business plan and general activities of the business. In a Limited Liability Company the Members, or Managers if any, transacts all business, so there may not be a requirement for approval of day-to-day decisions and affairs. An annual business meeting is a good idea in order to keep everyone informed of the business plan, investment plan, and to gain member input. LLC meetings are usually not necessary to take any action that is required by or consistent with the Limited Liability Company agreement.

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What About Taxes on Wages and Salaries?

The LLC and its managers, officers, and members are responsible for payment of salaries, wages, and payroll taxes. They must insure that salaries and wages as well as payroll taxes are properly paid. They may incur personal liability if the LLC fails to make proper withholdings and tax payments.

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