client meetingWe counsel all manner of businesses on choice of entity, a rather elementary question, but one that can have substantial impact. And, as most, if not all, of our business clients know, we routinely recommend a corporate form of business entity over the limited liability company format except in limited instances, such as for holding real estate or other assets held for investment purposes, or in certain estate planning matters.

As we have written in the past, many influences exert pressure on our clients and potential clients to elect the LLC over a corporation. These can be attorneys and accountants not nuanced in their particular implications, to the exertion of popular press, or my favorite, barbers.

We have a matter currently coursing its way through our offices, thankfully not involving our client but a party on the opposite side of a transaction. That party, an LLC, operated a business for almost 10 years. During that time, investors were solicited to try and shore up the capitalization on the balance sheet. Unfortunately for everyone involved, the business failed. The problem becomes the question of deductibility of that investment loss. Under the Internal Revenue Code, stock purchased from a small business corporation is deductible in increments of $50,000 a year until all of the losses are exhausted. (For married couples, that is $100,000 per year.) Unfortunately, there is no similar provision for limited liability company investments, and thus that deductibility of the bad loss is limited to the rules that govern deductibility of other types of losses, which is generally limited to $3,000 per year.