How LLC works?

[Armand P.]

Hi

Trying to rap my head around this.

Let's say that there is an LLC established and we have completed a few deals. What if one day a member of the LLC wants to leave for whatever reason how would he get out and what impact will that cause the other members?

Also, if I have a partnership with one LLC group and decide I want to be a silent partner with another investor will I a new LLC be required?

Lastly, the profits from the investments go into a LLC account prior to disbursement. How are the taxes paid from these earners? In other words, would each of us get some kind of tax return?

Thanks!

Armand

[Blake Meester]

Hello @Armand P.

There are many considerations when considering a choice of entity and you should definitely have a discussion with an attorney and tax professional that are experts in real estate. It is very difficult, if not impossible, to apply “general” advice to your specific situation. Let me see if I can give you some information to point you in the right direction and help you understand the concepts.

It looks like you have three questions which I will address separately:

• 1. You will need to consult the LLC operating agreement which should layout how the buy/sell would work. The LLC operating agreement is the starting point for the mechanics of the "how" and "if" questions. It is imperative that you understand and follow your LLC operating agreement. Get some help from an attorney that is licensed in your state.
• 2. I am not sure what you are asking here? It is certainly possible to have one LLC with one group of members and then have a second LLC with different members. It would depend on how you were to structure the deal. Remember that even if you do not create a formal entity, you may create a partnership for federal tax purposes if you and another party share in net profits. Beware of informal partnerships.
• 3. This would depend on how the LLC is taxed. Generally, for federal tax purposes, the LLC would be taxed as a partnership. This is not always the case as you could elect to be taxed differently. If the LLC was taxed as a partnership the entity would file a tax return and the members would receive a Form K-1 that would should the partner's share of income, deductions, credits, etc.

This is complex stuff.