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How does a family limited liability company work?

On Behalf of | Aug 6, 2021 | Business Formation |

Do you have a family business in Texas? Forming a family limited liability company (LLC) may be the ideal business structure for your needs, especially if your business continues to grow.

What is a family LLC?

A family LLC is a subtype of a limited liability company where all the members must be related by blood, marriage or adoption. It is also a closed corporation, meaning only a limited number of individuals are owners. When first establishing a small business, many entrepreneurs do not think about using the family LLC structure during business formation. However, as your operations grow and you add family members to the business, you may want to consider the advantages of changing your structure to a family LLC.

Advantage of family LLC formation

The head of the family or the family business is generally the person who forms the LLC. As with other types of LLCs, a family LLC will generally protect the company’s assets against claims by creditors of the members. Family LLCs are also useful as a tool to divide income among multiple generations involved in the operation and as an estate planning tool. This structure also defines the rights of all owners, who is responsible for decision-making and how assets of the Family LLC may be transferred. You can also form a Family LLC for commercial real estate or brokerage accounts (but not for personal residences).

Forming your family LLC

Family LLCs are expensive to set up and maintain because of their complexity and ongoing maintenance, including filing quarterly tax returns. They also may require the services of a legal professional who is familiar with business law and estate planning.

Even though the initial costs are substantial, changing your business structure may benefit you substantially. If your business has grown large, future savings may significantly outweigh current costs.

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