Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

A, B, C are the owners of a restaurant and want to open another

10 restaurants of the same...
A, B, C are the owners of a restaurant and want to open another 10 restaurants of the same chain, they will ask for 50% of the monthly gains for each restaurant, what is the best organization structure for this. Having A, B and C form a C Corporation and then have the 10 restaurants as S Corporations, LLC's or joint Venture's?, The best for A, B, C is to receive a K1 of all the gains that they will be receiving from the 10 other restaurants?, and of course they will be paying their taxes on their portion. Is this the best organization structure for this case?, do you have a better idea?.
Show More
Show Less
Ask Your Own Tax Question
Answered in 15 minutes by:
7/18/2013
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,163
Experience: Taxes, Immigration, Labor Relations
Verified

LEV :

Hi and welcome to Just Answer!
based on your information - A, B, C are partners - and they are running business as a partnership.



A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.


A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return.


Some additional information about partnerships may be found in IRS Publication 541 - http://www.irs.gov/publications/p541/index.html


Then - each partner reports pro-rata share of income on his/her individual tax return.


LEV :

You may have the LLC with several member - and that LLC will be treated as partnership - so that would be no difference from income tax prospective.
However - having 10 LLC would trigger some extra overhead for filing 10 partnership tax returns. Unless there is specific purpose - I do not thin that would be reasonable - and will not affect the tax liability of partners.

LEV :

In some situations - you might want to have several business entities. For instance - if restaurants are operating in two different states - you might want to have two separate LLC registered in each state.

Customer:

Is there something like forming the Main Corporation (C?) and then have the 10 restaurants as LLC's reporting to the Main Corporation?

Customer:

Each restaurant will be operated by manager (who will also share the profits with the owners, but the owner will not be in each restaurant, just acting as trainers and consltants)

Customer:

There will be operating only in california

Customer:

So A, B, and C could be a LLC, C or S corporation? and then have the 10 restaurants also as LLC, C, or S? submitting partnership returns to A,B and C?

LEV :

Having the LLC treated as a partnership is a good starting point. If you want to choose the LLC to be treated as a corporation - you may make such selection at any time in the future.
You definitely may have a more complex structure - as you suggested - a holding corporation (or a partnership) which will own other business structures. However - that will add an overhead for filing multiple tax returns and generally will not affect overall tax liability.
You might want such structure for other purposes - for instance - if you plan to sell any specific restaurant - it might be better to have it in a separate business structure which would be simply liquidated. However without any specific purpose having a complex structure is not advisable.

LEV :

If you are not certain which business structure to use - the best would be to register the LLC.
A Limited Liability Company (LLC) is a business structure allowed by state statute.
Depending on elections made by the LLC and the number of members, the IRS will treat an LLC differently. Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation.
So - with NO election - the LLC will be treated as a partnership. You may elect it to be treated as a corporation - and may make such election at any time.
Thus you may start the LLC as a partnership - and when the business will take off - you may choose the LLC to be treated as S-corporation or C-corporation.
If you want most of the profit to be reinvested into the business - C-corporation would be the best structure. However - if most profit will be distributed to owners - S-corporation could be the best.
If you are not certain - just do not make any election now - and postpone your choice.

Customer:

why S corporation is the best for distribuiting profit and why C is better for the structure?

Customer:

and what about joint venture?, is like partnership too?

LEV :

why S corporation is the best for distributing profit and why C is better for the structure?
S-corporations are pass through entities.
With S-corporation - owners are generally in two roles - employees and shareholders.
As employees they received wages - subject of income and employment taxes - partly paid by employees via withholding and partly by the employer - S-corporation.
As shareholders - persons are responsible for their share of S-corporation income which is passed to them on K1 - that part of income is NOT subject of employment taxes and is not subject of self-employment taxes as it would be in case of the partnership. That is the S-corporation might be more advantageous compare to the partnership - but only if the profit large enough to cover additional overhead for filing employment tax returns.
C-corporation is a separate taxing entity (not pass through) - it pays its own income taxes.
Similarly - owners might be employees and shareholders.
However dividends distributed to shareholders is taxed twice - on the corporate level - and then for each shareholder. So if most of the profit is distributed - you might pay more taxes. But if most of the profit is used for business purposes - for instance to open additional restaurants - only corporate income tax are due.

Customer:

So then if they want open additional restaurants but also get some profit the best advise will be LLC, right? or C if they only want to open more restaurants.

LEV :

what about joint venture?, is like partnership too?
yes - it is a partnership - but generally the term "joint venture" is used to describe a short term partnership. For instance - a restaurant forms a joint venture with a car service to provide discounts for either customers
In additional - the IRS defines a “qualified joint venture,” whose only members are a husband and a wife filing a joint return, can elect not to be treated as a partnership for Federal tax purposes.
See more information here - http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Election-for-Husband-and-Wife-Unincorporated-Businesses

Customer:

So then how a Corporation as a holder for all the 10 restaurants would work? Corporation and all 10 restaurants as LLC's?

LEV :

So then if they want open additional restaurants but also get some profit the best advise will be LLC, right? or C if they only want to open more restaurants.
If you are not sure how the business will go - and that is very common at the starting point - starting the LLC is the best first step.
You are not required to register specifically the corporation. You may have the LLC and choose it to be treated as C-corporation now or later. Having the LLC would be more flexible.
Another issue - you might not have any profit for first year-two - in this case your LLC will be simply a partnership without any selection.

LEV :

So then how a Corporation as a holder for all the 10 restaurants would work? Corporation and all 10 restaurants as LLC's?
You may have a corporation that owns all restaurants - you may have separate accounting - but for tax purposes - that will be ONE entity - and you will file ONE tax return.
You may have a separate business entity for each restaurant. However - because you are in California - each LLC will pay at least $800 every year regardless if it has any profit. So unless you have other reasons of having multiple entities - it doesn't seem reasonable.

Customer:

So they can have a C Corporation and have all the money coming from profits of the restaurants to be invested in open more restaurants, and if they are part of the LLC of each restaurant they can have from there a distribution of their profit.

Customer:

or they can have each restaurant as a LLC and have a k-1 for each one, and then decide what to do with their profits, invest to open more restaurants or for them as a profit

LEV :

You may have ANY business structure you want - that is not an issue.

Customer:

ok, great, I appreciate your quick response and yes you gave me a good explanation for what I was looking for, thank you very much and have a great day!!

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,163
Experience: Taxes, Immigration, Labor Relations
Verified
Lev and 87 other Tax Specialists are ready to help you
Ask your own question now
Ask Lev Your Own Question
Lev
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,163
30,163 Satisfied Customers
Experience: Taxes, Immigration, Labor Relations

Lev is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
I am preparing a form 8802 for an LLC that will be filing as
Good morning. I am preparing a form 8802 for an LLC that will be filing as a Partnership on Form 1065. For 2016 this entity was a Single Member LLC and two Partners were admitted October 1, 2017. … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,490 satisfied customers
LLC tax status I have a client that is a North Carolina LLC
LLC tax statusI have a client that is a North Carolina LLC taxed as a S-corporation. Because of her business change, she needs to change her taxing entity back to a Sole proprietor but still needs the… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
2 Member LLC now 1 Member LLC. What forms to file to IRS? I
2 Member LLC now 1 Member LLC. What forms to file to IRS?I have an LLC that was Me and Member B. Member B has now left the LLC and sold his ownership to me for no consideration. I am now the sole owne… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,490 satisfied customers
I have a client that was a Sole Proprietor. He formed an LLC
I have a client that was a Sole Proprietor. He formed an LLC and elected to be taxed as an S-corp on 8/1/17. He purchased a $39k vehicle in his sole proprietorship in 2015 and deducted Sec 179 and A/D… read more
Lev
Lev
Tax Advisor
30,163 satisfied customers
I am 50% partner in an LLC, taxed as partnership (form
I am 50% partner in an LLC, taxed as partnership (form 1065). The other 50% partner is my friend. This LLC's only assets were 2 single family houses, which we rented out. In 2016 we have sold both of … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
MY SISTERS FORMED AN LLC TO MANAGE MY MOTHER'S HOME AS
MY SISTERS FORMED AN LLC TO MANAGE MY MOTHER'S HOME AS RENTAL PROPETY. WE ARE SELLIG THE HOUSE (NO MORE RENTERS). UPON THE SALE, WHEN ARE TAXES ON THE CAPITAL GAINS DUE? … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
As an independent contractor (1099) should I form an LLC? Do
As an independent contractor (1099) should I form an LLC? Do I need to? … read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
A single member LLC which was formed to rent residential
Barbara, A single member LLC which was formed to rent residential properties sells one of the properties in 2017. The LLC has unallowed losses per Part 1 of its 2016 Form 8582. Are the portion of the … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,490 satisfied customers
Well I'm having issues with filling a 568 LLC form, Well I
Well I'm having issues with filling a 568 LLC form … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,490 satisfied customers
Does an LLC need to file K-1 forms if they claim no profit
Does an LLC need to file K-1 forms if they claim no profit or loss? … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,490 satisfied customers
I have a client who has an LLC and files a form 1065 at the
I have a client who has an LLC and files a form 1065 at the federal level. More than 80% of the gross income comes from personal services actually rendered by the owner and member of the LLC. … read more
Lev
Lev
Tax Advisor
30,163 satisfied customers
I am aware that a foreigner can form an LLC in the states.
Hi,I am aware that a foreigner can form an LLC in the states. My question is; if he/she is living in Japan and wants to live in California by starting a business, is forming an LLC here in the US solv… read more
Lev
Lev
Tax Advisor
30,163 satisfied customers
I'm trying to form an LLC and there's so much info out there
I'm trying to form an LLC and there's so much info out there that I'm not sure what to do or how it really works. … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
A Nevada partnership (LLC form in Nevada) own property in
A Nevada partnership (LLC form in Nevada) own property in Nevada. in 2016, the partnership hire a manager in California to manage Nevada rental property (this manager is show on the Nevada Secretary s… read more
Lev
Lev
Tax Advisor
30,163 satisfied customers
Three business partners formed an LLC. Two of the business
Three business partners formed an LLC. Two of the business partners need to go to a seminar that cost $6000. The business doesn't have enough money to pay for this and the third partner is not willing… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,230 satisfied customers
Second opinion] We are considering forming LLCs for each of
second opinion] We are considering forming LLCs for each of our rental properties. Currently, we automatically draft our tenants' bank accounts for the monthly rent and the money goes directly into ou… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I formed an LLC (for real estate investing) in Colorado in
I formed an LLC (for real estate investing) in Colorado in May of this year. What is the process or forms I need to convert to an S Corp? … read more
Richard
Richard
Tax Attorney
Doctoral Degree
4,310 satisfied customers
A tax payer formed an LLC in the state of Texas. Can the tax
a tax payer formed an LLC in the state of Texas. Can the tax payer file a schedule C for the federal tax return and retain the LLC status in the state of texas… read more
Matthew Breecher
Matthew Breecher
President
MBA (Graduate Legal Studies)
285 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x