I am starting a new business
venture which will include a total of 5 investors including myself. The business will be a distillery in the Denver metro area. All of the investors will invest equal monies and split 50% of the business for an 10% equity share. I will retain the remaining 50% of the business in addition to my 10% equity stake.Two of the investors (myself and one other) will work for the business and draw a nominal salary. Two other investors (who will not be working for the business) will be investing in the business from within their IRAs.
I would prefer to operate the business as an S-corp, however, it would appear that this is not possible because of the investors using their IRA's.
The business is not projected to make any significant profit until year 3. One option is to start the business as a C-corp and then after two years convert to an S-corp when the investors are able to purchase shares from outside of their IRAs. Does this seem viable?
Another option is to form as an LLC
. This option seems less appealing to me because of the lack of formality with this organization, as well as the self employment tax. I understand that an LLC can choose to be taxed as a different entity (C-corp, S-corp, etc.). Is it possible to operate as an LLC, but choose to be taxed as an S-corp and avoid the above mentioned issues of investing in an S-corp from within an IRA?
Are there other options that would suit my situation better?
I would also like to know the best way to handle payment of the nominal salary. It seems silly to invest money into the business and then have it taxed before getting it back as salary. What is best way to handle this?