Confirmation

[DTS]

I have an LLC that has eight managing members. Each has different % of ownership, ranging from 55% down to 1-2%. Six of the eight (1-2%) are taking guaranteed payments of approx. $55,000 each. To me, this seems to be excessive payment according to ownership.

Is this OK? I have some concerns about this and would like to head off any problems that may occur down the road. Maybe, I'm making too much of this.

Thank you,

Dennis

[sea-tax]

I have an LLC that has eight managing members. Each has different % of ownership, ranging from 55% down to 1-2%. Six of the eight (1-2%) are taking guaranteed payments of approx. $55,000 each. To me, this seems to be excessive payment according to ownership.

Is this OK? I have some concerns about this and would like to head off any problems that may occur down the road. Maybe, I'm making too much of this.

Thank you,

Dennis

Dennis if it is a LLC taxed as a 1065 then I do not think that you have any issues. My understanding is that one advantage of the LLC/1065 is that you can allocate profits and losses as well as distributions anyway you want. My advice would be to make sure that the operating agreement is inline with what is going on.

Maybe someone else can offer more insight.

[DTS]

Sea-tax...

They will file a 1065 and I have been told they share in profit/loss according to %. If I'm not mistakened, the allocation cannot be changed from year to year to suit the needs of the LLC, but I may off-base with that. I'd have to do some further checking.

I have not seen the OP since they completed it, but have requested it and will see it in the next couple of weeks. Right now, I don't know what it states, which has me worried!

Dennis

[Nashville]

You're OK

Dennis, its not a totally true statement, but for all practical purposes a guaranteed payment is synonymous with "salary." Remember that the protocol for partners is for them NOT to receive a W-2, so the guaranteed payment is how they get paid. And the partnership gets to deduct the guaranteed payments just like any other expense.

So a $55,000 guaranteed payment is like a $55,000 salary. Should not blow anyone out of their chair if these partners are working full-time. Lest someone beat me up over this, I must add guaranteed payments often have elements to be considered other than compensation, but to answer the question I have kept it simple.

[DTS]

Nashville

Thanks!

After I posted, I was wondering why I am having such a hard time with this. It came to me that I'm just a tightwad and the thought I'd pay someone as much as I pay myself is ridiculous to me!

Honestly, when put the way you did to me, makes total sense.

Thank you, again.

Dennis