It was recommended that we form an LLC and LP. Does anyone have any comments about this? Suggestions? Thank you in advance for any replies.

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Do not take this post as legal advise because I am not an attorney and I do not give advise but use it as a series of questions when you consult an attorney.

A LLC (Limited Liability Corporation) or LP (Limited Partnership) are distinct and separate types of vehicles of ownership of assets and liabilities.

LLC as the name implies is owned by shareholders in the name of the LLC(  HideBehindRockGas,LLC)

could be an affiliate of a larger gas company with a hugh amount of Assets that prefers to have ownership

in Hide Behind Rock Gas,LLC to shelter their hugh assets from Liability and potential lawsuits etc..

Individual and families who have separate assets may also want to consider sheltering their other assets

into an LLC to protect themselves from liability.

A limited Partnership (LP) is another vehicle of ownership but is a Partnership not a corporation and each has different types of TAX consequences, basically a corporation is taxed as a separate entity as if it were a separate person and a Partnership the income and losses are taxes amongst each partner.

The Limited Partners are limited in their liability only for Partnership assets and liabilies but the Partnership has a General Partner which is not sheltered from liability from his/hers personal assets.

A Limited Partnership is the gas and oil industry is sometimes used to raise money from Investors

with the gas company being the General Partner, with liability and the Investors holding partnership interest without additional liability except for their interest in the Partnership.

This is a quick overview to give you an idea of what the different types of ownerships are and their relationship to sheltering liability and some questions about the different types of taxation.

We are in the process of filing for a FLP Family limited Partner ship.
The attorney advised that we have the General partner shares held in a LLC but I figured we could wait until we actually have royalties being paid to see if it's necessary.

This link is a good overview of Family Limited Partnership

Thank you so much for sharing. We are discussing the same issue.

First of al. I am not an attorney either. But I do have lots of experience with forming and taxation of different entitites.

An LLC is NOT a limited liability corporation. It is a limited liability COMPANY. big difference. A single member LLC will be taxed as the individual. A multi-member LLC will be taxed as a partnership. Is there liability protection, sure, to some extent. How much is unknown until proven in court a few times. An LLC can chose to act as a S-Corp.

A Family LP has lots of benefits, but also has increased costs in extra bookkeeping and tax returns. A person can and usually does hold both limited and general partnership shares in the same partnership.

This is definitely the case of one size does not fit all. Talk to an experienced O&G attorney. That money you spend will be saved many times over in the future.

Thanks AJ. I really appreciate the feedback.

I have the contact info for a man in Idaho who owns nothing and controls everything with 5 LLCs in New Mexico, where not even the financial officers are public knowledge. Contact me on facebook private chat

We have our property in Harrison county in an LLC since 2008.. We had already done that before we had leased any acreage for oil & gas.

May I ask why a landowner would form an LLC or LP?  What would the benefits be?

How do you stay in control of assets, make gifts to your family, lower income and estate taxes, and avoid lawsuits? The Family Limited Partnership is being used by people all over America to protect, leverage, and control family wealth. Here's how it works and what it can do for you.

Hello Carl I suppose my main reason is concern of possible inheritance tax In the future and the very real possibility that my children could lose the home farm for lack of being able to pay the taxes.
I still remember when my father passed away the government wanted an appraised value of everything he owned even the clothes hanging in his closet and the effort it took to raise the money to pay those taxes.

The devil is in the details caveat also works in this case.  The concept of using LLC or Trust's to shelter liability or transfer assets to avoid probate and minimize taxes

is a good one to have on this site where so many people now have more assets with more value and management of those assets becomes a prudent way to plan for a family.  Please realize that each state has different laws that apply to each of these entities and taxation of transferring assets may be different under each circumstance.

Tax Consequences for Revocable and Irrevocable Trusts

by David Carnes, Demand Media

Revocable and irrevocable trusts are treated quite differently under U.S. tax law. The main reason for this disparity is that the assets of a revocable trust are considered the property of the grantor, while an irrevocable trust is treated as an independent legal entity that owns its assets. Creating a trust may carry unexpected tax consequences, some of which may be unfavorable.

1) Enter Any Address & Search It 2) Get Value, Property Taxes & More

Income Tax Treatment of Revocable Trusts

A trust may earn income in the form of interest on funds held in a bank account, for example, or rent paid by a tenant living in a house owned by the trust. If you create a revocable trust, known as a grantor trust by the IRS, all trust income is taxed as your personal income, and you must report it on your Form 1040 tax return even if it remains in the trust. You must also complete a small identification section of Form 1041 and file it, although you don't have to report trust income.

Income Tax Treatment of Irrevocable Trusts

The trustee of an irrevocable trust must complete and file Form 1041 to report trust income, as long as the trust earned more than $600 during the tax year. Irrevocable trusts are taxed on income in much the same way as individuals. The trustee must also file Schedule K-1 and deliver copies of it to each beneficiary who received a distribution from the trust during the tax year.

Gift Tax

The transfer of assets to an irrevocable trust, or to the beneficiary of a revocable trust, is a taxable event resulting in gift tax liability. As of 2012, the gift tax exclusion is $13,000 per year per beneficiary, except that gifts to your spouse are never subject to gift tax. The amount of any gift that exceeds $13,000 is taxable at a maximum rate of 35 percent. You must file the gift tax return, Form 709, only if you actually owe gift tax. The recipient of a gift is never liable for gift tax.

Estate Tax

Estate tax is imposed on that portion of the value of a deceased taxpayer's estate that exceeds the gift tax exclusion applicable during the year of the taxpayer's death. The deceased taxpayer's executor must file Form 1041 if the estate owes estate taxes. The value is $5,120,000 for taxpayers dying in 2012. The assets of a revocable trust are counted as the grantor's assets for gift tax purposes; however, the assets of an irrevocable trust are not counted as part of the grantor's estate. Even though the assets of an irrevocable trust are considered assets of the trust itself, estate tax is never imposed because trusts do not die.

Beneficiary Taxation

A beneficiary of a revocable trust does not have to pay income taxes on his distributions from the trust since the trust grantor has already paid these taxes. Distributions to beneficiaries of an irrevocable trust, however, are taxable to beneficiaries at ordinary income tax rates.


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