S-corp as owner of LLC

[dburd52]

Hi,

I have a client who is a film maker. Her business is set up as an S-corp. She is the sole shareholder and officer. She wants to set up an LLC with a producer to raise funds for a feature film. She asked me if she should own her half of the LLC as an individual or should her s-corp own her half of the LLC? What are some of the pros and cons of the s-corp owning her half of the new LLC?

I don't have any experience with the layering of entiies.

Thanks for any suggestions. Sincerely, David

[Bees Knees]

If the S corp owned the LLC, you would not have to deal with the SE tax issue. Whether the LLC pays guaranteed payments or passes income through on line 1 of the K-1, the S corporation is not subject to SE tax. Any profits the S corp pays to the shareholder as W-2 wages would be FICA taxable, but the S corp is already doing that.

The other advantage is you added one more layer to the liability issue. If the LLC gets sued, the court would first have to pierce the LLC, then the S corp, before getting to the individual's personal assets.

[Matt Sova]

Off the cuff

Pro - as you may know there have been many discussions/debates on the SE Taxability of Multi Member LLC's. If the S-Corp is the member then everything will flow through there first eliminating this gray area of the tax law.

Con - If, for some reason, they pierce the LLC veil her S-Corp is then liable. However, if she is a member, she is liable.

Con - She cannot distribute her LLC membership to herself from the S-Corp. This is an asset of the S-Corp and in order to get that out you would have a deemed sale from the Corp to her. This would create gain that is passed through the S-Corp to her.

I will probably come up with more info after my brain wakes up.

[Unregistered]

Thanks

Thank you Matt and Bees. Sincerely, David