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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?
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.
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.
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.
What can we do to avoid double-taxation? See above, LLC taxed as a partnership, no C corporation.
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.
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.
Yes. The whole point of the LLC is to protect personal assets.
And if the C corp is the investor, that's actually two levels of protection
Think about the C-corp as a bullet proof vest. Then the LLC is another vest on top of that.
If one were to pierce the corporate veil of the LLC, they would still run into the C-corp.
Okay and what about the initial contribution upon LLC formation - can the expettise be considered as contribution or does it have to be capital?
See above. It can absolutely be experience, so long as everyone is in agreement.
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