Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Monday, March 17, 2014

Article on The Use of Disregarded LLCs by Charities

OutwreathAlyson Outenreath (Professor at Texas Tech School of Law) recently published an article entitled "Uncharitable" Policy for Charities: Use of Disregarded LLCs by I.R.C. Section 501(c)(3) Organizations Is a Trap for the Unwary in Certain States, 54 S. Tex. L. Rev. 685 (2013). Below is the introduction to this article:

Anyone who has reviewed the organizational chart of a business enterprise is familiar with seeing multiple entities, and in today's world it might seem as if a business' aggregate operations comprise an infinite number of entities. Reasons can vary for why a business would benefit from separating its various assets and operations into separate entities, but one of the most customary reasons is asset protection. 1 For example, if A, an oil and gas production company, forms a corporation to own and operate various production sites across the United States, the assets and revenues of each and every one of A's production sites would be fair game in a lawsuit relating to any single production site because all production sites are held and operated by a single entity. 2 In contrast, absent any veil-piercing or alter ego issues, if A had formed separate corporations to own and operate each production site, the only assets and revenues at risk in a lawsuit relating to one single production site would be the assets of the separate corporation that holds such production site. 3 As a general rule, a multiple- entity structure segregating each production site into a separate corporation would protect the assets and revenues unrelated to the lawsuit. 4

Charities are no different. Just as A wants to protect the assets and revenues of A's nationwide oil and gas production business, charities want to protect their assets and themselves. 5 For example, a multiple-entity structure ...

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.


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