Posted by JHyre in Ohio on August 02, 2003 at 06:58:28:
The judgment would not attach to the C-corp or its assets. Instead, the judgment creditor would seize the presidents shares in GM, plain and simple. That means that the creditor would own the shares owned by the president, presumably not the whole company in the case of GM. With a closely-held company, the results would be far more profound for the company as a whole. Some states common law doctrine may limit the ability to seize corporate shares in closely-held companies IF there are other bona fide shareholders…that’s dicey protection at best.
In re LP vs. LLC - I don’t see much of a difference between the control exercised by a GP in an LP or the Manager in an LLC…in both instances, the management control is near absolute. In the case of a very large organization (i.e. - not the small outfits contemplated by most people on these fora), I might lean towards LP due to the precedent that there has never been a sucessful hostile takeover of an LP (of which I’m aware). Otherwise, I default to LLC as a “pass through” choice for holding property because it’s cheaper than an LP and doesn’t have the liability issues that LPs face in some states (limitations on what Limited Partners can do without losing the “Limited” part of the title…the RULPA addresses this issue to a large degree, while the old Uniform Limited Partnership Act really does not).
Since an LLC taxed as a Corp has to maintain Corp formalities to pass IRS muster, why not just form a Corp from the get-go? From what I read the main difference between a Corp and LLC is that an LLC has less formalities, which you give up when an LLC elects to be taxed as a Corp.
Posted by JHyre in Ohio on July 28, 2003 at 13:57:42:
If you end up with a personal judgment against you, the judgment creditor can generally seize a corporation. Siezing an LLC, on the other hand, is much more difficult. So an LLC treated as a C-corp gets the tax benefits of the C-corp but the asset protection of an LLC.
Please explain how a personal judgment can attach a C-corp and its assets? If this were the case, what?s to prevent the president of GM from getting sued and judgment creditor owning GM? Not counting being the majority shareholder of a C-corp, the C-corp is essentially a juris person, hence, an entity all to itself. It files its own tax return - 1120.
We could go into the minutia of this, for instance, alter ego, fraud, failure in corporate governance, etcetera, but let us assume corporate governance is OK and no fraud has been committed. The statement on the face of it does not sound right considering there is considerably more precedent with C-corps as opposed to LLCs.
On another note, I’m putting together a fund and would like to structure it using a PLAIN OLD LP with a corporate GP. The issue I have with an LLC is control and being voted out by the investors if the sailing gets rough. I would rather deal with Limited Partners as opposed to some internal agreement regarding who?s in charge of the LLC. Your thoughts are always welcome.