Well, I’m vetting a horse (yay… fingers crossed) and in researching text for the sales agreement, I realized that a number of sample sales agreements identified the Seller as an LLC. It makes sense to me. My Seller is an independent rider/trainer/importer/seller, who leases a facility, and is NOT an LLC. I mentioned to Seller that it might be something to consider.
Thoughts? For those of you who are in the horse business (training, teaching, selling), are you an LLC or just an individual?
[h=1]Advantages of an LLC[/h] 
by Jane Haskins, Esq.
Freelance writer [h=2]Advantages of an LLC[/h] by Jane Haskins, Esq., March 2015When you’re starting a new business, you have a lot of choices. You can follow the lead of many large successful companies and form a corporation. But you may also have heard that limited liability companies are good for smaller businesses.
For those thinking of starting an LLC, here are six of the main LLC benefits.
1. Limited Personal Liability
If your business is a sole proprietorship or a partnership, you and your business are legally the same “person.” Your business debts are also your personal debts. And if your business partner or employee is accused of negligence, your personal assets might be at risk.
An LLC limits this personal liability because an LLC is legally separate from its owners. LLCs are responsible for their own debts and obligations, and although you can lose the money you have invested in the company, personal assets such as your home and bank account can’t be used to collect on business debts. Your personal assets are also protected if an employee, business partner or the business itself is sued for negligence.
2. Less Paperwork
Corporations also offer limited liability, but they have to observe certain requirements that may not be well suited to a small, informally run business. For instance, corporations typically must hold annual shareholder meetings, make annual reports and pay annual fees to the state. They also tend to have substantial recordkeeping requirements.
In contrast, LLCs don’t have to hold annual meetings and usually are not required to keep extensive records. In many states, LLCs do not need to file annual reports.
3. Tax Advantages of an LLC
LLCs get the best of all worlds when it comes to taxation. LLCs don’t have their own federal tax classification, but can adopt the tax status of sole proprietorships, partnerships, S corporations or C corporations.
The Internal Revenue Service automatically classifies LLCs as either partnerships or sole proprietorships, depending on whether they have one owner or more than one owner. This means that LLCs can always take advantage of “pass-through” taxation in which the LLC does not pay any LLC taxes or corporate taxes. Instead, the LLC’s income and expenses pass through to the owners’ personal tax returns, and the owners pay personal income tax on any profits.
In contrast, traditional C corporations are taxed twice on distributions to shareholders: once at the corporate level and once at the individual level. S corporations avoid double taxation and receive pass-through tax treatment, but not all corporations are eligible.
4. Ownership Flexibility
S corporations enjoy pass-through taxation, but they have several ownership restrictions. For example, they can’t have more than 100 shareholders, can’t include foreign shareholders and can’t have shareholders that are corporations. LLCs provide pass-through taxation without any restrictions on the number and type of owners they can have.
5. Management Flexibility
Corporations have a fixed management structure that consists of a board of directors that oversees company policies and officers who run the day-to-day business. Owners, also known as shareholders, must meet every year to elect directors and conduct other company business.
LLCs don’t have to use this formal structure, and an LLC’s owners have more choices about the way they run the business and make decisions.
6. Flexible Profit Distributions
LLCs have flexibility in the way they distribute profits to their owners, and they aren’t required to distribute them equally or according to ownership percentages. For example, two people may have equal interests in an LLC, but they may agree that one of them will receive a greater share of the profits because he or she contributed more money or labor in the business’s startup phase.
Corporations, on the other hand, must distribute profits to shareholders according to the number and types of shares they hold.
An LLC’s simple and adaptable business structure is perfect for many small businesses. While both corporations and LLCs offer their owners limited personal liability, owners of an LLC can also take advantage of LLC tax benefits, management flexibility and minimal recordkeeping and reporting requirements.
In some states there are annual fees related to the business, and to keep the business in good standing, you have to file forms and they fees charged for the forms can really add up - I pay about $500 in fees and taxes a year just to keep my LLC up. So unless you are setting up a serious business, there is no reason to do it.
We used C Corp for the farm, it provided some specific benefits for us. Since the corporation rented the property from us, payments of rent were an expense of the company and passive income for us not subject to social security or medicare taxes. There were many other reasons that made a C Corp the best choice for our needs.
You’re buying a horse from a random seller, and gave them unsolicited advice that they should consider setting up an LLC? My thought is what does it matter to you?
1. Limited Personal Liability
If your business is a sole proprietorship or a partnership, you and your business are legally the same “person.” Your business debts are also your personal debts. And if your business partner or employee is accused of negligence, your personal assets might be at risk.
An LLC limits this personal liability because an LLC is legally separate from its owners. LLCs are responsible for their own debts and obligations, and although you can lose the money you have invested in the company, personal assets such as your home and bank account can’t be used to collect on business debts. Your personal assets are also protected if an employee, business partner or the business itself is sued for negligence.
This is why I think LLCs are immoral; people are harmed by the owner of the LLC but because the owner is personally shielded from the harm the LLC does (in most cases), the owner doesn’t suffer at all. Say someone forms an LLC to own and deal horses, and the LLC has no other assets. Any damage caused by the horses or the LLC dealer is "bullet and bombproof because the LLC is a shield for the owner/dealer, and it takes quite a bit to “pierce” that shield.
IMO, LLCs, which are a fairly recent innovation, can cause their owners to act less responsibly.
Undercapitalization is one common reason a court might pierce the LLC veil.
Corporations also have the same limitations of personal liability, even if it is a sole shareholder corporation.
more so is commingling assets such as using single checking account for both business and personal uses
An attorney made it clear to me that an LLC would not do a better job than insurance at saving me from “malpractice” if, say, a student got hurt in the ring while I was teaching. In this scenario, it would be unreasonable to parse out me as the decision-making professional from me as an LLC. And I agree, too, that no court is going to allow an LLC to remain way underfunded as a rather callous hedge against risk or negligence.
well there is negligence which may just have been an oversight and then there is gross negligence which is a conscious and voluntary disregard of the need to use reasonable care, which is likely to cause foreseeable grave injury or harm to persons, property, or both.
BINGO!!! 
The article is a bit light on some things and this one of them. Go the LLC route if you want but be sure you’re got proper insurance.
G.
even “proper” insurance for the corporation may not cover Gross Negligence by the party…the insurance for the company would cover the company’s position but if the employee (trainer/BO/who ever) acted in a conscious and voluntary disregard without using reasonable actions then they themselves independent of the legal company structure are open for legation
Not legal advise, just person experience
The IRS thinks they are quite necessary to help a business owner separate personal financial activity from business related activity. An LLC has a federal tax ID number and most LLCs have separate accounts for all LLC related activity.
Indeed.
More than one doctor back during the “malpractice insurance crisis” of the '70s went the LLC route and put all their assets there. I thought it was legal malpractice for their lawyers to have even given them this advice! They got two, really expensive lessons. First, the LLC was not effective if a court found the transfer of assets was to perpetrate a fraud on creditors (and a plaintiff who won a malpractice case became a creditor.) Second, if they got divorced the spouse would usually walk away with at least 50% of the assets of the LLC. Just how much the spouse got would depend on the number of children involved and the relative culpability of the parties.
In certain circumstances use of the LLC can be both lawful and beneficial. But you have to get proper advice from your lawyer, CPA, and investment adviser first. If you have enough assets that you’re considering this route then you have enough assets to pay for the needed advice!!! Relying on a “magazine” article is a REALLY BAD IDEA 
G.
Sort of getting back to the OP… if you are a seller that is doing a fair amount of sales (or leases) as a big chunk of income, whether it is your FT job or whether you just happen to be good at the horse sales thing but have a different “career”, an LLC can be beneficial because you can elect to have it taxed as a corporation. This may have a benefit on your tax liability apart from the liability issue. The default for most single member LLCs is to tax as a sole proprietorship, and if you are losing money in your LLC some years or if it’s a pretty small side hustle, then you can just include it on your usual taxes rather than filing quarterly, and perhaps the losses could sometimes offset your other primary income tax liability.
I know there are some on this board who have had some very high dollar sales or regularly lease out a horse for a 5 figure annual lease fee who have formed LLCs for the first reason above because they want that activity separate from their personal taxes.
Many people have brought up some great points and I don’t care for the article referenced; it misses some disadvantages. Here are some accounting things to take into consideration:
Accounting: If you are a single member LLC and make an S election to be taxed as an S corp, you will need to file your 1120S by March 15th. The pass-through earnings flow through to your personal return via a K1 and of course, your personal return is due April 15th. This means you will probably end up paying your tax preparer for an 1120S and your 1040 (personal return). This is something you need to weigh against the advantages.
Hobby Loss rules: The IRS can rule that your business is really a hobby and your losses will be limited to the amount of earnings you make in a year (ie: you can’t claim a loss, just that you broke even). The most widely known hobby loss rule is that you have to make a profit 3 out of the last 5 years (profit 2 out of the last 7 for activities involving horses). There are other factors that can mitigate the 3 out of 5 years rule but LLC’s do not protect you from hobby loss rules. From my conversations in the accounting world, the IRS is particularly picky about horse businesses (breeding operations really) due to finding many wealthy people offsetting their earning by losses on horse businesses (deliberately being run at a loss).
As many people have said, LLC is not a one size fits all. It has its place but is worth consulting with a lawyer, CPA, and an insurance agent to see if it is the BEST fit for you.
If you have adequate insurance coverage, an LLC may be unnecessary. It all depends on your business.
Well, yes… of course just which species of negligence this will be is the subject of the lawsuit. But that has nothing to do with having that “insulating layer” of an LLC or not.
If for no other reason, I’d continue to keep my horses in an LLC purely so I can have an EIN and not have to give every Tom, Dick and Harry show secretary my SSN!
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