How to structure 2 or more member LLC?

Question

Hi guys!

One very smart person said:

" If you want the multi member LLC because you are unsure if you could be contested in a single member LLC, then find a trusted friend and give them a nominal amount (5% or less) of the LLC (or even approach an investor for this type of request.)"

Originally posted by @Scott Smith

So, my question is, how to structure it? Lets say the second member/manager is my mom.

There is a statutory agent, member, manager, place of business, member managed or manager managed...

Its all really confusing.

1) Should I put as a statutory agent myself? Or the second member?

2) Place of business is the rental property, right?

3) member is me?

4) If we have a multimember LLC how it affects taxing? Does it not flow into a personal  tax return? Are we supposed to file taxes together with my mom now because we have that LLC together?

Thank you

Lance Lvovsky · Answer

@Mary Jay

You could also fund a small interest say 5 percent to a Trust.

Mary Jay · Answer

Thank you so much!!!

Russell Gronsky · Answer

@Mary Jay, An LLC is a legal structure. The way you elect to tax it is strictly between you and the IRS. It has no bearing on the legal status of your LLC. As long as you opened an LLC with your state, and are following the rules of how an LLC should behave throughout the year, then you will retain the legal protections of your LLC.

Zachary Bohn · Answer

@Mary Jay I'm not sure if turbo tax has a 1065 form setup. Since it is still an LLC you do still have the legal protection as long as you follow the rules for an LLC. Some partnerships don't have legal protection but that is if you don't setup an LLC or any other type of legal formation.

Mary Jay · Answer

Thank you!

If I am doing buy and hold, then partnership is better, got it.

1) Where do I get 1065? I usually use turbotax for my and my moms tax returns. Does turbo tax have 1065?

2) if its taxed as a partnership, it does not strip off of legal protection, right? (Ive heard some forms of partnerships do not have much of a legal protection ) but  Since its an LLC  taxed as partnership, LLC still will cary legal protection, right?

Lance Lvovsky · Answer

@Jairo Ortega

You should consult with a CPA who knows trust and estate tax planning and has a full understanding of your facts.

Russell Gronsky · Answer

@Zachary Bohn, you nailed it. I'm a flipper and set up an LLC to be taxed as an S-corp for the services I provide to the company.

Jairo Ortega · Answer

@Lance Lvovsky I like your Trust idea.

Are there any tax consequences in doing that? Also, I presume there is an initial legal setup fee, but what is the maintenance cost on something like that?

Zachary Bohn · Answer

@Russell Gronsky is right. If you are a multi-member LLC then by default the IRS views you as a partnership and you are required to file a 1065 with each members profit from the business passing through to their personal return.

If you are planning on a buy and hold strategy I wouldn't suggest an S-corp for your business, a partnership will be fine. If you are flipping properties an S-corp is probably better. You will be required to take a reasonable salary for the services provided to the business. For a person who is maybe a small owner and doesn't provide any services to the business they are not required to take a salary.

Russell Gronsky · Answer

@Mary Jay, these are questions for a CPA to answer about the taxes and your lawyer, about your agents, places of business, etc. as your choice will depend on how you elect to have your LLC taxed.

I'm just starting to unravel this problem myself but I do know that an LLC is not a tax structure, it's a legal structure. You will have to elect how the IRS should tax it. Initially, when you request an EIN for you LLC from IRS.gov, it will default your multi-member LLC to be viewed as a partnership by the IRS for taxes. You can elect to leave it as a partnership, or you can have it taxed as an S-corp. You can elect other taxing schemes but I wanted S-corp so I wasn't paying a lot of attention to the other options.

A multi-member LLC is still a pass-through entity so if you elect to tax it like an S-corp, it will still flow through to your individual taxes. I believe each member of the LLC will need a K-1 to include with your individual tax returns, but you'll still calim all the profits/looses of the LLC on your own tax returns. This might just be for LLC's tha get taxed like an S-corp, again, I don't know much further than this so talk to your CPA.

You do not have to file taxes together with your mom, if she is the other member of your LLC. Everyone files their own taxes.

The reason why I said your choices will depend on how your LLC is taxed is because of how you elect to have your LLC taxed. As an S-corp, each member must draw a "reasonable" salary each year for being an employee of the LLC. So if your mom will be a 5% owner, you'll have to make sure her salary draw is in line with IRS rules and your articles of operation. So maybe you will want to elect a different taxing structure, to avoid dealing with salary draw for a 5% employee, depending on what hte IRS rules are for it.

Yeah...bottom line....CPA and asset protection lawyers are your friends here...

How to structure 2 or more member LLC?

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