The general partner does not have liability protection. LLCs have several advantages over S corporations. LLCs have no limitations on the number or the types of members. An LLC may have different classes of ownership interests and may have wholly owned subsidiaries. Parents form the LLC by signing an operating agreement.
Attorney files articles of organization with the state.
Parents transfer growth-type business or investment assets in exchange for membership units. The value of the gifts of membership units is determined by taking into account the assets of the LLC and, in addition, minority interest, lack of transferability, and lack of marketability discounts. These discounts can range from 25 to 50 percent or more of the net asset value, permitting parents to transfer extra value, as well as future value increases, to the next generation. To maintain control, the parents can issue voting membership units to themselves and nonvoting membership units to their children and can name themselves as the managing members of the LLC, making all financial and business decisions. In addition to keeping certain assets within the family, the LLC arrangement can serve as a way to provide for centralized management.