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I have a client who has an LLC with 3 partners. Can all

three partners be Limited partners...
I have a client who has an LLC with 3 partners. Can all three partners be Limited partners or one of them must be General partner. Reason I am asking, there is income, where for all the limited partners it is considered as ordinary income, yet for general partner it is considered as self employment income and it deducts 15% self employment tax. All partners are equal 33.333% shareholders. One is actually taking care of the business, the other two are just an investors.
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3/14/2018
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 5,013
Experience: 35 years tax experience, including four years at a Big 4 firm.
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One must be a general partner. The member agreement typically spells out which partner is.

The reason is one member/partner must have the authority to carry on LLC/partnership business, and limited members/partners do not have a say in management.

State LLC law governs , but I don't know of a state that does not follow this specification.

And, as a practice tip, we typically set these up with the general partner being a corporation, so that the SE income goes out, then is routed out to the owner of that entity (and this can be wages, expenses, etc. - it typically saves substantial tax each year, and will be more as the business grows).

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