Trading via LLC -- want to touch base with someone who trades via an LLC entity

[megan]

Does anyone out there use an LLC (Limited Liability Company) entity to trade stocks? I need to touch base with someone who uses this type of entity and who has more than one member in the LLC.

I have been doing some research over the past few weeks about forming an LLC with a relative of mine and have come across two facts: firstly, an LLC has to have more than one member or it is disregarded for tax purposes and secondly, that owning a relatively too small token percentage of the LLC could be frowned on by the tax authorities.

For instance, if my relative owned 99% of the company and I owned only 1% of the company, such a small percent ownership could be viewed as being a sham simply to ensure that the LLC had two members.

The problem I am faced with in this is that my relative has quite a bit more money than I, and so the amount of money I can contribute to the LLC will be comparitively small.

I was wondering if anyone has set up an LLC and what percentage ownership was recommended by the accountant/lawyer etc who set it up.

I want to emphasize that I am not asking for any sort of “legal” advice. I’d just like to touch base with anyone who has some experience doing this. I’ve not be able to find an accountant who really knows the in’s and out’s of this where I live.

It would also be nice if anyone who has done this is aware of any sort of special wording in the Operating Agreement. I’ve heard that there are some important wording issues, but I just can’t find anything specific online.

I’d like to get some feedback on this as soon as possible, as I really need some guidance... but if you should stumble upon this in 2 or 3 weeks, please don’t hestitate to respond. It will probably take until the end of July before the matter is finalized.

 

[JP1966]

I think you have it slightly wrong.

I trade via a LLC and from what I recall when I set it up (in 2002) it must have 2 directors but can be wholly owned by one person.

However where you may be getting confused is in the area of tax. The reason people trade via an LLC is for the limited liability (obviously) but also the tax advantages. Usually as a director you would look to pay a small salary with the rest made up of dividends. One advantage of this is that neither the company or the individual pay NI on divs.

The issue you may be thinking about is the HMRC look quite carefully at ownership, who does the real work in a company and the dividend split. For example if the equity split is 99:1 then I don't think the dividend can be split 50:50 (but check). The real reason this came to prominence is that many companies were run by say the husband but the wife was an equal shareholder. Thus say the company made £80k then roughly £16k was due in corporation tax. The husband and wife them paid themselves the remaining £64k in dividends (£32k each) and no more tax was due. However if the £64k was just paid to the husband he would have been liable to the higher tax rate on approx say £30k. Thus the HMRC clamped down on what they regarded as a tax dodge. (ie they argued the wife was not entitled to such a share of the profit as she made no real contribution to the success of the firm and the only real reason she received divs was to reduce a couples tax)

I don't think I've explained it very well but hopefully given you a few pointers.

 

[Claudia123]

I think you have it slightly wrong.

I trade via a LLC and from what I recall when I set it up (in 2002) it must have 2 directors but can be wholly owned by one person.

However where you may be getting confused is in the area of tax. The reason people trade via an LLC is for the limited liability (obviously) but also the tax advantages. Usually as a director you would look to pay a small salary with the rest made up of dividends. One advantage of this is that neither the company or the individual pay NI on divs.

The issue you may be thinking about is the HMRC look quite carefully at ownership, who does the real work in a company and the dividend split. For example if the equity split is 99:1 then I don't think the dividend can be split 50:50 (but check). The real reason this came to prominence is that many companies were run by say the husband but the wife was an equal shareholder. Thus say the company made £80k then roughly £16k was due in corporation tax. The husband and wife them paid themselves the remaining £64k in dividends (£32k each) and no more tax was due. However if the £64k was just paid to the husband he would have been liable to the higher tax rate on approx say £30k. Thus the HMRC clamped down on what they regarded as a tax dodge. (ie they argued the wife was not entitled to such a share of the profit as she made no real contribution to the success of the firm and the only real reason she received divs was to reduce a couples tax)

I don't think I've explained it very well but hopefully given you a few pointers.

He is in the States not the Uk.

 

[lloydbee]

so nothing after all these years

 

[BSD]

Oy Claudia chime up please.



Lloyd, here ya go, they should be able to advise:

http://www.greencompany.com/green-nfh-services/investment-management-services

Anything regulatory / legal etc I'd always let experts handle, definitely worth the (small) cost compared to costs that may arise when stuff goes south.