The AMLP™ vs. The LLC

What is an Asset Management Limited Partnership^™ (AMLP) and how it is it different than an LLC?  It is important to know how our Partnership is different from a Limited Liability Company.  These legal entities are similar in structure, but used in distinct and complimentary ways when the goal is Asset Protection.

The AMLP^™

An AMLP™ is a legal entity known as a Limited Partnership (LP). LP’s have been around for over 100 years, but became popular in the 1980s when real estate developers and investors began using it to assemble groups of unrelated investors. A defining feature of a LP is the creation of two classes of partner:

1. General Partner(s): All management authority, generally responsible for liabilities of partnership
2. Limited Partner(s): Zero management authority or discretion over partnership assets, no liability beyond the investment made

This distinction makes the LP useful in businesses where some partners are managers and others are only investors. The term “Family Limited Partnership” (FLP) is often used in the context of holding, managing, and passing on family wealth. All Limited Partnerships are governed under the statutes of the state in which they are created.
Some states are stronger than others when it comes to creditor protection. Select states such as Arizona and Nevada limit the creditor to a “Charging Order” as the exclusive remedy for collecting the debt.

A Charging Order is simply a lien or claim on whatever distributions the partner may receive from the partnership. As an exclusive remedy, a creditor can be made to wait indefinitely if the partnership decides to suspend distributions to the affected partner. Creditors in these states can be burdened with the income tax liability of a partner even when distributions are not made.  The deterrent effect against the creditor to seek a judgment is clear with this type of structure.  For this reason L&L only uses Arizona to register your Asset Management Limited Partnership™.

An LP will also have its own tax ID and file a 1065 partnership tax return, and are most commonly treated as a pass-through entity for tax purposes. This means no double tax, as all income is accounted for via a K-1 on the individual partners return.

The LLC

The LLC is a relative newcomer to the field of business entities. They started in Wyoming and Florida in the 1970s. The goal was a corporate structure with the limited liability of a corporation without the downside of double taxation. Prior to the LLC this was accomplished by an S corporation; however, S-Corps have significant ownership restrictions and are therefore difficult to use. With the introduction of the LLC came a true hybrid with the benefits of the Corporation and none of the S-Corp restrictions.

The LLC has the same tax options as the AMLP^™ above. The LLC does not use the term shareholders, but rather ‘members.’ The standard LLC has one class of member to mirror corporate stock ownership, creating majority-rule management. This can be changed through careful drafting, but the distinction becomes important compared to Limited Partnerships for use in Asset Protection.

There is confusion about which structure is superior for Asset Protection. Both are useful but the differences create advantages for the Limited Partnership over the LLC. For example, in Arizona, one of the strongest jurisdictions for Asset Protection, the following are some of these critical differences between an AMLP^™ and an LLC:

The Differences

It is much easier to obtain an “Administrative Dissolution” in an LLC. This is a significant disadvantage with respect to Asset Protection. Among the grounds for administrative dissolution in an LLC are:

• Failure to make required amendments to the articles of organization
• Failure to make required publication
• No statutory agent or registered office for a period of 60 days
• Failure to notify the corporation commission of a change in statutory agent or registered office within 60 days

While these seem minor, they are often overlooked and may be used by a judge to justify dissolving an LLC. There is no corresponding statute for an AMLP^™, which is much more likely to remain intact in a creditor crisis. Additional advantages of LPs over LLCs include:

• A majority of LLC members can require a distribution in an LLC
• There is no right to distribution in an AMLP^™ until winding up
• An AMLP^™ can allocate income, gain, loss, deductions or credit items in any manner it deems appropriate.

As a result, an AMLP^™ as the primary “holding” entity for assets is usually preferable in Asset Protection Planing. This is particularly true if the plan includes a Bridge Trust^®. The Bridge Trust^®would typically own a majority of the AMLP^™, which is easier than attempting to draft around the LLC rules over membership interests.

The LLC is, nevertheless, extremely useful in holding, insulating and shielding ‘risky’ assets, such as real estate, boats, airplanes and other risk-generating property. LLCs can in turn be owned by the AMLP^™ “holding company.” When clients are the minority General Partners of their AMLP^™, with their Bridge Trust^®as the majority Limited Partner, you have a structure that is controlled by the client but owned by protective entities.

This structure is both easy to use, and highly protective. It creates a strong deterrent to litigation, while granting clients a level of control they usually desire.

The best way to determine if your assets are at risk and the legal options available to protect them, is to schedule an Asset Protection Analysis. We will provide a confidential review of your financial resources, including your risk level, asset classifications, and personal objectives.

Taking control of your own financial, estate and asset protection planning is critical to your peace of mind. Let us help you gain that peace of mind. Please call 800.231.7112 to schedule your analysis.