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Limited Liability Company

A limited liability company (LLC) is a flexible form of enterprise that blends elements of partnership and corporate structures. It is a legal form of company that provides limited liability to its owners in the vast majority of United States jurisdictions. LLCs do not need to be organized for profit.

In an effort to reduce fees, paperwork, and processing delays, some self-directed IRA investors choose to employ a Limited Liability Company (LLC) IRA structure. In such a structure the account holder directs his IRA custodian to invest into a limited liability company that the account owner manages himself. The account owner can then execute transactions on the LLC level without the involvement of the IRA custodian, thus reducing fees and eliminating custodian transactional fees and delays. The profits of the LLC pass through to the IRA with nearly identical tax favorable treatment. Some claim that this IRA LLC strategy has been legitimized through a tax court case: Swanson v. Commissioner, 106 T.C. 76 (1996). Others disagree on the validity of the court case. Some refer to this structure as “checkbook control” because the IRA account holder often has sole signing authority for the LLC and its bank accounts.

Often incorrectly called a “limited liability corporation” (instead of company), it is a hybrid business entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are). An LLC, although a business entity, is a type of unincorporated association and is not a corporation. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. It is often more flexible than a corporation and it is well-suited for companies with a single owner.

It is important to understand that limited liability does not imply that owners are always fully protected from personal liabilities. Courts can and sometimes will pierce the corporate veil of corporations (or LLCs) when some type of fraud or misrepresentation is involved.

A joint venture is a business agreement in which all parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They both exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee with partners holding shares.

PLEASE NOTE: As a client of Horizon Trust, Inc., or any other self-directed custodian, it is completely your responsibility to investigate each and every investment that you make. Horizon Trust cannot and does not provide any protection from a poor or improper investment. Make sure you know what you are investing in, with whom you are investing, and what investments may constitute a violation of IRS code with regard to Individual Retirement Accounts.