Corporations were once considered the gold standard as the business structure for financial advisory practices, but that's been changing in recent years. Limited liability corporations are growing in popularity for their tax advantages and flexibility. Take dividend payouts, for example. Conventional corporations require that dividend distributions to shareholders must reflect their share of ownership, regardless of how many assets an advisor brings to the business. Under an LLC structure, two advisors with equal stakes in ownership of the practice can use formulas that divvy up dividends differently, providing the biggest dividend shares to the advisor with greater AUM. Unlike corporations, LLCs also can elect to be taxed under the rules for sole proprietorships or partnerships, but they enjoy the same liability protection as corporations. And unlike corporations, there's no need for an annual meeting. “When we're dealing with small businesses, they're not often great at the formalities” that corporations require, says Brian Hamburger of MarketCounsel, a law firm in Englewood, N.J.
