A limited liability company (LLC) is a relatively new legal invention. It is often chosen by entrepreneurs and businesses over a corporate entity, particularly when there are a small number of investors. LLCs offer more flexibility in how the burdens and benefits are shared by members.  Occasionally, LLCs are adapted to overcome solve lesser problems. Here are three examples:

Sporting Event Entity.  My wife and I are Angels baseball fans and have had season tickets since the first World Series win of the club. As with most sports teams, the longer you hold the seats, the better your seat choices will be the following year. However, baseball clubs usually do not allow ticket holders to assign or transfer their season ticket rights to another person.  You have to continue to buy the tickets each season to preserve your right to the same seats. If you don’t buy the tickets your priority is lost. However, consider the season ticket holder that is a business – say an LLC. An LLC is a separate, fictitious, legal entity. However, unlike a natural person, an LLC has owners. So, if an LLC was formed by faithful sports fans that purchased tickets for prime location seats, a later change in the ownership of the LLC would not change the owner of the tickets. A premium seat could be effectively transferred from one group of avid sports fans to another – or rather, a membership in an entity that has a premium seat. 

Virtual Sale of Low Assessed Property.  The same principle applies to residential and commercial property owned by LLCs. A sale of real estate usually triggers a reassessment of the value of the property for property tax purposes. However, if a membership in an LLC is sold, the real estate owned by the LLC is not reassessed. The sale of an interest in an LLC that owns real estate could be worth more than the sale of the real estate! The new LLC owner could occupy the house or commercial property and have all the benefits of a property owner. 

Avoiding Sales Tax.  Selling a large ticket item such as an airplane, a yacht, an executive motor home, or a classic car usually triggers a sales or use tax. The tax could be significant. However, if an LLC is the owner of the personal property, a sale of an LLC membership does not trigger sales tax. This is particularly helpful where there are several members that have partnered to make the original purchase. When one of the original group wants to sell his interest, the sale would be of his LLC interest, not the interest in the specific property that would require the payment of sales tax.    

Cautions: None of these scenarios works if you already own the sports tickets or the real estate or the “big ticket item” personally. A transfer of real estate from an individual or individuals to an LLC would be an actual sale of real estate and would trigger the tax reassessment. The sale to the LLC from the individuals of a “big ticket item” would generally require the payment of sales tax. If you recently purchased the property, or if the reassessment of the property would be a positive event (i.e., the value has subsided significantly), then you may have an opportunity. Similarly, an attempted sale of the right to season tickets to another would just put you back in the sun of the stadium’s center field.  It takes some advance planning to have these kinds of structures in place when the original purchase is made.

You should consider the minimum cost and tax to have an LLC in the first place. So a benefit analysis has to be made with something of sufficient value. Other income tax consequences should also be explored.  However, setting up structures like these could be translated to other situations, where transferability is otherwise restricted. An attorney should be consulted who will read the “small print” and give you an opinion before committing in this way.  If done properly, entrepreneurial planning and sophistication could result in tax savings or allow you to have a different view – one behind Home Plate with a transferable value.

Do you think that the use of an LLC in this way is irresponsible or just savvy?  Let us know what you think with a comment on this blog.

 Warning: This article is intended to discuss general concepts and ideas and should not be viewed as legal advice for your specific situation. Always consult and rely upon your attorney and your tax advisors before implementing a strategy for your personal or business situation.