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Richard
Richard, Attorney
Category: Business Law
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Experience:  32 years of experience practicing law and a businessman.
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If I have a SMLLC and want to bring on a silent investor -

Resolved Question:

If I have a SMLLC and want to bring on a silent investor -
1. Do I have to list them as a member of the LLC and change the status to a partnership or multi-member LLC?
2. How do I pay distributions to the silent investor?
Submitted: 5 years ago.
Category: Business Law
Expert:  Richard replied 5 years ago.

Good morning. 1) You do not need to file anything with the state for the admission of the new member. But, you will need to do an Assignment of Interest assigning the investor the interest in the LLC. And, you will now need the LLC to file its own tax return and the tax items will then be passed through to the members via a K-1. The LLC will still pay no taxes itself. 2) You will need to amend your Operating Agreement to provide for the new investor and that agreement will set forth the agreement between the two of you regarding distributions. You will then make the distributions pursuant to the terms of that operating agreement.

 

 

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Please be aware that the information provided here is not legal advice. Rather it is simply general information. All states have different intricacies in their laws and any information given is simply general information only and specifically is not intended to be, nor does it constitute, legal advice. This communication does not establish an attorney-client relationship with you. I hope this answer has been helpful to you.

 

 

Customer: replied 5 years ago.

If I complete an Assignment of Interest assigning the investor the interest in the LLC, and then file a tax return for the LLC for the tax items to be passed through to the other members via a K-1 -

 

Will the other investors end up "double taxed" if I have a K-1 given to me from the original distribution assigned to the SMLLC and then file a tax return under the LLC so that I can distribute the money to the silent investors?

Expert:  Richard replied 5 years ago.
There will be no double taxation. Each year, the LLC has items of income and deduction....which may include items allocated from another LLC via a K-1. The LLC will prepare a tax return ... Form 1065.... including all the items for the year. Then, those items will be allocated out to the members of the LLC....and the allocation of those items will account for a member coming in mid-year as agreed by the members. Many times you will have a accounting done at the entry and allocate everything prior to the admission to the single member and then allocate everything after to the members in the ratio of their new interests. But, nobody gets hit twice with the same item.
Customer: replied 5 years ago.

So if the original LLC gives me a K-1 and then my LLC completes a K-1 to cover my invetors, will the original LLC now know that there is more investors involved?

 

And will I still be classified as a SMLLC with a silent investor?

Expert:  Richard replied 5 years ago.

You will no longer be a single member LLC once you have another member/investor. The original LLC will simply issue the K-1 to your LLC...it need not know the members of your LLC.

 

 

I would appreciate it if you would please click the GREEN ACCEPT button so that I receive credit for my work; otherwise, though you have made a deposit, I do not receive credit.

 

 

 

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