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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
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Experience:  10 years experience
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Can I form an LLC in CA to operate a business with my

Customer Question

Can I form an LLC in CA to operate a business with my brother as a partner who receives no income. I need him as a veteran member to qualify for a contract. He lives in another state and will not do any work.
Submitted: 1 year ago.
Category: Tax
Expert:  Mark Taylor replied 1 year ago.

Hi, my name is Mark. I will be happy to help you with your questions.

Expert:  Mark Taylor replied 1 year ago.

Yes, you could form an LLC where your brother is a partner. With an LLC there is flexibility from the allocation of profits and losses.

Customer: replied 1 year ago.
this is not an adequate answer. It is very simple minded, basic, elementary. I sent a follow up question asking if there is a problem if my brother receives no income. I thought I saw on the IRS website that he must have an interest in the business. Like a 1% ownership.
Expert:  Mark Taylor replied 1 year ago.

You are correct that your brother would need an interest in the partnership. One of the benefits of an LLC is that it is very flexible. You can structure the partnership agreement where you would receive guaranteed payments for the services that you perform for the partnership. You would be able to allocate the remaining profit or loss by the ownership percentage.

Customer: replied 1 year ago.
You haven't answered my question "is there is a problem if my brother receives no income?" The rest is very general statements that are found in introductory IRS information and some of it I haven't asked for. I do not want to be charged and since it has already been charged I request a refund. Otherwise I will file a complaint with my credit card company.
Expert:  Mark Taylor replied 1 year ago.

I do not believe that you are understand what I am saying. You would need to allocate profits or losses to your brother based on a reasonable method. Often this is done based on ownership percentage. You could receive guaranteed payments for your services that would reduce the net income of the LLC. By using guaranteed payments you would be allocated all of the income. Let's assume that the LLC generated a taxable income of $100,000. If you receive $100,000 in guaranteed payments the net income drops to zero. The guaranteed payments would be reflected as income on your K-1. This is the same as my previous response.