The Benefits of Alaska Corporations and Limited Liability Companies
Alaska has two of the best asset protection laws on the books: its Corporations Act and its Limited Liability Company Act.
Alaska, similar to Nevada, has act basically adopted of the Delaware Corporations Act. These Acts are unique from most of the Corporations Acts across the United States. For Example, Alaska allows one person to be the only director, shareholder, and officer of the corporation, whereas most other jurisdictions require a minimum three people to fill the officer and director positions. These states do this because they are on the cutting edge of corporate law and are consistently updated the act to include more modernized elements. The large body of case law and provisions in Alaska also provides extensive protections for shareholders of corporations, limiting their personal risk outside of the business.
Some clients decide to set up a limited liability company instead of a corporation. There are several benefits for setting up an LLC in Alaska. Alaska is one of four states which provides the same protection to single member LLCs as other states do for multi-member LLCs. In most states, creditors of a single member LLC may pierce the entity to access the assets of the LLC to satisfy their demands. In Alaska, however, these same creditors are prohibited from accessing the assets of either single or multi-member LLCs. Furthermore, Alaska has one of the strictest charging orders in the United States. A charging order is the order given by the courts at the end of a proceeding as a final judgment against a company, if found liable. In Alaska, even if a creditor obtains a charging order against an LLC they cannot access the business income or assets. Basically, this makes it merely impossible to actually enforce the judgment against the business.
LLCs are not recognized by the IRS as taxable entities, so an LLC must make an election on how it wants to be taxed. An LLC can be taxed as a Corporation (S or C), Partnership, or it can be disregarded as an entity separate from its owner. (A tax return would be required of the LLC should it elect to be taxed as a corporation).
In the case of a single-member LLC, the IRS would automatically classify the company as a “disregarded entity”. This means that the Service disregards the LLC for Federal tax filings and requires that the income of the company be reported on the owner’s tax return. Any tax that is due would be paid by the owner; the LLC itself does not pay any taxes. Or to put it another way, the income of the LLC becomes the income of the owner, who is ultimately responsible for paying taxes on that income.
Consequently, a single-member LLC in Alaska can enjoy the best tax and liability protection as the IRS will treat it as a disregarded entity while providing asset protection as if it were a multi-member entity; thus, limiting exposure for the owner.
JUNE 6, 2016 BY GREG CHRISTIANSEN
About Greg Christiansen
Greg is the owner of Guardian Law, LLC, a national law firm specializing in estate planning and asset protection services. Our focus is to help you leave a living legacy for your loved ones.