Fact checked by Skylar Clarine
Reviewed by Ebony Howard

A family limited liability company (LLC) is formed by family members to conduct business in states that allow LLCs. Members must be related by blood, adoption, or marriage. The family LLC is a popular way to protect the assets of a family business against claims by creditors. It also serves to divide income among generations and assist in estate planning. It is a type of closed corporation.

What You Need to Know

• A family limited liability company (LLC) protects the assets of a family business from creditors.
• An LLC offers the protection of a corporation with the tax structure of a partnership.
• A family LLC can be useful in estate planning.

Family LLC Formation

A family LLC is formed by one family member who serves as the managing member. The family LLC’s operating agreement defines and restricts rights related to ownership, functional decision making, and transfer of assets. A family LLC can be formed for legal business purposes, such as real estate or brokerage account management. However, a family LLC cannot be used to manage a personal residence.

Note

An LLC is a legal entity that enjoys the limited liability of a corporation and the operational and managerial flexibility of a partnership.

Family LLC Cost

A family LLC is typically costly to form and maintain and requires a legal counsel who has experience with setting up family businesses. Of course, while not necessary, it’s always a plus if the attorney is also familiar with the type of business the family owns.

Legal fees may range from $3,000 to over $10,000, depending on complexity. Other expenses a family LLC can expect to incur include the costs surrounding annual meetings and fees associated with preparing and filing tax returns, which must be done on a quarterly basis.

Asset Protection

As noted above, a family LLC is a useful tool to shield family assets from creditors’ claims. Each member’s financial contribution limits their debt liability for the LLC. Members may be prohibited by the operating agreement from withdrawing and then reacquiring their interests in the company that can be later claimed by creditors.

Other restrictions, such as an absence of certain members’ rights to vote or oust the management, limit the ability of creditors to interfere with LLC operations and seize the LLC’s assets.

Estate Planning

In addition to its use for business purposes, family LLCs are widely used in estate planning. A family LLC can help you control and protect assets during your lifetime, keep assets in the family, and reduce taxes owed by you or family members during your lifetime or after your death.

Is It OK to Have Multiple LLCs?

Yes, you can have as many LLCs as you want. You’ll just need to pay to form and maintain them.

Can You Have Two LLCs Under the Same Address?

Yes, more than one LLC can have the same address. And it doesn’t need to stop at two. Multiple LLCs can have the same address.

Can One LLC Pay Another LLC?

Yes, an LLC can use its assets to pay another LLC. In certain cases, it could even give a loan to another LLC.

Is It Difficult to Form an LLC?

It typically isn’t that difficult to form an LLC. There are resources online that will walk you through the process. Here’s how you create and maintain an LLC:

1. Name your business.
2. Choose a registered agent.
3. Fill out and file articles of organization.
4. Complete an operating agreement.
5. File an annual report every year.

What’s the History of LLCs?

The first LLC was created in 1977. It was named the Wyoming Limited Liability Company (LLC). In 1988, the Internal Revenue Service (IRS) formally recognized the ability of an LLC to be taxed as a partnership. From that point on, interest in LLCs exploded. Just eight years later (at the end of 1996), all 50 states and the District of Columbia had passed statutes allowing LLCs to be formed in their jurisdictions.

“In less than 20 years—a meteoric pace unprecedented in the development of business organizations—this new business form grew from obscurity to a viable new alternative for doing business,” writes Susan P. Hamill in “The Origins Behind the Limited Liability Company.”

The Bottom Line

It may be wise to look into forming a family LLC. whether you’re hoping to protect a family business from creditors or use it for estate planning purposes. All family LLCs require the legal expertise of an attorney who is familiar with setting up family businesses. Family LLCs should also be set up in a state that has protective LLC laws.