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RGMacEsq
RGMacEsq, Attorney
Category: Business Law
Satisfied Customers: 15743
Experience:  Licensed Texas General Practice Attorney
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We are a C-Corp and were offered to take 49% owenrship in either

Customer Question

We are a C-Corp and were offered to take 49% owenrship in either LLC or Corp in Small Women Owned Business entity. How will this affect our taxes? What can we do to avoid double-taxation? finally - do we have to put down capital contribution upon formation or the expertise contribution will be enough?
Submitted: 3 years ago.
Category: Business Law
Expert:  RGMacEsq replied 3 years ago.

RGMacEsq :

Thank you for using JustAnswer. I am researching your issue and will respond shortly.

RGMacEsq :

Just to be clear, the C-corp will be the owner of this interest, and not you as a shareholder? It's not going to convert to another type of entity, correct?

Customer :

Thank you! No, basically we have been approached by a group of 2 female business owners, who want to open a new business and classify it as a Small Women Owned Business, we are considering either forming LLC or Corp and giving them 51% ownership to be compliant with Small Business Requirements.

Customer :

And right now are concerns are - how to avoid double tax if us (C-Corp) will own a 40% in another Corp or LLC? And the other issue is the initial contribution of capital/expertise.

RGMacEsq :

Thank you. In regards to your questions: How will this affect our taxes? - Assuming that this LLC is taxed as a partnership, the profits would be distributed to the corporation and taxed at your corporate level. There would not be any major change from the way that it already is. If it is formed as a C-Corp itself, or an LLC taxed as a corporation, then profits would be taxed at that corporate level, then distributions made to your corporation (after 1 level of taxes) and those would be taxed (most likely) at the dividend rate, if your ownership was passive. It would be taxed at a normal rate if it was active. As such, I would suggest that you structure this as an LLC, taxed as a partnership.

RGMacEsq :

What can we do to avoid double-taxation? See above, LLC taxed as a partnership, no C corporation.

Customer :

Okay but if we do it as LLC taxed as partnertship - will the LLC still protect our personal assets? We want to make sure that the personal assets of two female owners will be protected.

RGMacEsq :

finally - do we have to put down capital contribution upon formation or the expertise contribution will be enough? Ultimately that would be up to the 51% owners how much you have to do to "buy in". One possibility with limited liability structures is the chance that a creditor can seek to "pierce" the corporate veil, and if a company is inadequately capitalized (funded) that's a way to do so. But if there are enough assets in the corporation to show that it's not a "sham" business (set up to avoid creditors, rather than conduct business) then this should not be an issue.

RGMacEsq :

Yes. The whole point of the LLC is to protect personal assets.

RGMacEsq :

And if the C corp is the investor, that's actually two levels of protection

RGMacEsq :

Think about the C-corp as a bullet proof vest. Then the LLC is another vest on top of that.

RGMacEsq :

If one were to pierce the corporate veil of the LLC, they would still run into the C-corp.

Customer :

Okay and what about the initial contribution upon LLC formation - can the expettise be considered as contribution or does it have to be capital?

RGMacEsq :

See above. It can absolutely be experience, so long as everyone is in agreement.

RGMacEsq :

Hope that clears things up a bit. If you have any other questions, please let me know. If not, and you have not yet, please rate my answer. Please note that I don't get any credit for my answer unless and until you rate it a 3, 4, 5 (good or better). Thank you, and good luck to you!

RGMacEsq :

Did you have any other questions before you rate this answer?

RGMacEsq :

Are you there? Please note that I am still here, awaiting your response.

RGMacEsq :

Should I continue to await your response, or may I assist the other customers that are waiting?

RGMacEsq :

My apologies, but I must assist the other customers that are waiting. If there is something else that I can help you with, please let me know. If not, please rate this answer. Please note that I do not get any credit for the time and effort I spent on this (or any question) unless and until you rate it a 3, 4, 5 (good or better). Thank you, and good luck to you!.

RGMacEsq :

I see that you have not responded in some time. Please note that this question is still open until you rate it. I believe that I have answered your question, but if you have any other questions, please let me know. If you have any other questions, please let me know. If not, and you have not yet, please rate my answer. Please note that I don't get any credit for my answer unless and until you rate it a 3, 4, 5 (good or better). Thank you, and again, good luck to you!

RGMacEsq :

Did you have any other questions before you rate this answer?

RGMacEsq :

If there's nothing else, please rate this answer. Please note that I don't get any credit for the time (~45 minutes) and effort that I spent on this answer unless and until you rate it a 3, 4, 5 (good or better). If you feel that I have gone above and beyond in this answer (my average answer is about 10 minutes) bonuses are greatly appreciated. Thank you, and good luck to you!