How much should I pay to get an LLC?

[mcwagner]

Corporate stock is an “investment” and is available to satisfy judgement creditors. You’re sued, lose, and now the scumbag owns the stock of the corporation that owns the property.

LLC membership is considered personal property (in all states I’ve ever filed in) and as such is not generally available to satisfy personal judgement creditors. Now the best the scumbag can get is a charging order against LLC income, where he pays the taxes on the income, but will be frustrated because he will never get any cash out of it (you as the manager simply never pay a distribution).

Both the corporation and LLC protect the individual from liabilities arising within the entity, but only the LLC protects the entity from the owner’s personal liabilities.

Always better to go with the stronger LLC structure, and simply tax it as an S-corp if that tax strategy better meets your needs.

[SChinFChin]

@anf301 post:16

jdproperties:

For larger, more established investors, I have recently found that subchapter-S corporations (or S Corps for short) have a tendency to be a better suited for various tax purposes. While I am not as well versed in tax implications as an accountant, an S-Corp can be better than an LLC when a lot of money is involved because each year an LLC “passes through” it’s income to the owners. This can be a problem if, for example, the plan is to let the money sit with the company in order to maybe acquire more assets in the future, cushion maintenance and debt service, or what have you. So that typically leaves the LLC members stuck with a tax bill on “income” they never actually received. There are certainly ways around this (e.g. a year end disbursement in an amount to cover the anticipated taxes), however if the investment company is large enough, an S-Corp might be something to look into.

I don’t have issues with your recommending an LLC. But I got a few issues with what you’re saying about S and C Corps and excess cash accumulation.

When something is taxed as an S Corp, taxes are paid whether or not the cash is taken out, so there is no issue with accumulating too much cash, since you’re taxed on it already. The IRS does have an issue if most of the income is passive, and you pay yourself too small a salary, or none at all.

Excess cash accumulation issues comes up in C Corps, because the cash accumulated is not taxed on the peronal level. You’ll need a good reason to keep the cash on hand.

I have a freind who ran his business thru a C Corp, because he wanted to acquire businesses along the same field, and want to pay little taxes at the lower C Corp level back then compared to personal, accumulate the cash, then buy another company.

At one time, Microsoft accumulated 50 to 60 billion in cash, giving the reason it was going to buy another business. They never did so, so a few years back, distributed billions to their stockholders. I got a a nice few dollar with the several thousand shares I owned. Had they kept on accumulating, when the cash position was around 50 to 60 billion, the IRS would have a problem with them.

[BLL11]

@Frank Chin post:20

@BLL post:19

anf301,

Why an s-corp instead of an LLC taxed as an s-corp?

I’ve looked into this because I have an “S Corp”, a “C Corp”, as well as an “LLC”.

Depends on what the LLC is used for. If for rentals, then it’s mostly “passive income” NOT SUBJECT to employment tax. As far as I know, there are limitations to the percentage of “passive” income an “S Corp” can have, and the IRS would want to see ALL of it active income, and they would want you to pay yourself a salary out of the passive income. On an LLC taxed as a propreitorship, or partnership, no such need to declare active income.

Bottomline, you want to keep all of the income passive if you’re doing rentals. If you have the LLC doing rentals in an S Corp, be ready to pay a salary.

Mark, pretty much summed up my thoughts. I don’t see why someone would use an s-corp instead of an LLC taxed as an s-corp. The LLC has better protection with identical tax treatment.