LLC Question

[JG EA]

Married couple now with Sch C. They want to become an LLC because of liability protection.They don't know which entity to select now - they are deciding.
I have questons about a printout my client was given by an atty.

1. It says that a new separate checking account should be opened in the name of the LLC. It says to purchase assets in the name of the LLC. If they chose to incorporate does that name with the "LLC" go to the corp?

2. He said they take money from the LLC in various ways. One way is getting a salary from the LLC. If they choose to be taxed as a partnership why would he say that?

3. He said they could lease their equipment to the LLC and thereby lower the profit. This is just wrong I think. Shouldn't they invest their equipment from the C to whichever entity they chose?

Thanks,

[BHoffman]

Perhaps they need a new lawyer

[newbie]

Just a guess.....

Some lawyers don't seem to understand the C = Company, but rather equate LLC with Limited Liability Corporation. I'd guess the lawyer is thinking in terms of forming a corporation rather than choosing the option of a partnership.

[Gary2]

1. It says that a new separate checking account should be opened in the name of the LLC. It says to purchase assets in the name of the LLC. If they chose to incorporate does that name with the "LLC" go to the corp?

This seems reasonable. It helps with the bookkeeping and probably helps with insulating LLC assets.

I'm not sure what you're asking about the name. It should be obvious that a corporation can't use "LLC" in their name. If they wish to change the LLC to a corporation, then it's probably a matter of state law whether they can use the same name for the new corporation. But even if they can't, I believe they can still use it as a trade name (i.e., a dba for the corporation).

2. He said they take money from the LLC in various ways. One way is getting a salary from the LLC. If they choose to be taxed as a partnership why would he say that?

Is this in the context of bookkeeping or simply management advice? For many businesses, it makes sense as a matter of financial management for the owners to take a fixed sum out on regular (e.g. weekly or biweekly) basis. Sometimes advisers will say "pay yourself a salary" in this sense, without intending that it be a payroll check along with a W-2.

3. He said they could lease their equipment to the LLC and thereby lower the profit. This is just wrong I think. Shouldn't they invest their equipment from the C to whichever entity they chose?

I don't know about the legalities of this, but assuming it's acceptable, might it have an effect at the state or local level? Or perhaps it limits liability exposure, by reducing the LLC's assets?

[TAXNJ]

Married couple - partnership

Regarding your Quote:He said they take money from the LLC in various ways. One way is getting a salary from the LLC. If they choose to be taxed as a partnership why would he say that?

You might want to look at the TB tab 20 which gives a good review of Partnerships & LLC

Hope that helps

[JG EA]

Thanks for your replies everyone.

This seems reasonable. It helps with the bookkeeping and probably helps with insulating LLC assets.

I'm not sure what you're asking about the name. It should be obvious that a corporation can't use "LLC" in their name. If they wish to change the LLC to a corporation, then it's probably a matter of state law whether they can use the same name for the new corporation. But even if they can't, I believe they can still use it as a trade name (i.e., a dba for the corporation).


Is this in the context of bookkeeping or simply management advice? For many businesses, it makes sense as a matter of financial management for the owners to take a fixed sum out on regular (e.g. weekly or biweekly) basis. Sometimes advisers will say "pay yourself a salary" in this sense, without intending that it be a payroll check along with a W-2.


I don't know about the legalities of this, but assuming it's acceptable, might it have an effect at the state or local level? Or perhaps it limits liability exposure, by reducing the LLC's assets?

This is very helpful. I couldn't quite harmonize what he was advising into what is happening on the emtity side of things. And I especially appreciate the leasing answer. I didn't think of it in terms of liability and not tax law. Thank you.