Thanks for the advice and confimation. I will get those books as well. I am familiar with Adkissons web site and have read the SMLLC case. I had always considered my LLC as multiple due to the fact that it is husband and wife. However, I am changing my thoughts. I hope you are right concerning the remedy. I will not check with an attorney but I will check in the book that the attorneys write as I have to know myself. I am also familiar with Garrett Sutton. I will see what they have to say on this particlular issue. I can also post it in the legal forum here. Let’s see how many concur with your assumption (assuming that to be the case LOL).
I read the earlier posting about filing a tax return on an LLC…
Q: What’s the difference between a single owner/director of an LLC and one where the LLC has two individuals, a 1% partner and the other director? I can’t word this any better and hope you understand what I mean.
My CPA recommends the partner route for the benefits…what are they? (more revenue for him in having to file?)
It makes more sense to me to just keep things simple as a sole proprietor.
Posted by TeddyB_SC on April 10, 2007 at 21:32:54:
Helene,
At the suggestion of a CPA, my wife and I formed an LLC for our flipping and rehab/sales. My wife is 95% owner of the LLC and a non-managing member. I own 5% and I am the managing member.
When flipping properties in the LLC, the non-managing member does not pay self employment tax on their profit, while the managing member does. Thus, we only pay SE tax on 5% of the profit from a flip.
I believe your CPA is trying to save you 15% of your profit. Make sure he explains the benefits to you and the criteria for being a non-managing member.
Judges hate asset protection schemes that keep people from paying their legitimate debts. Since single member LLCs (which more or less includes a married couple) are a pass through entity for tax purposes anyway, judges will simply order the single member to use the assets of the LLC to satisfy a judgment. They can hold you in contempt of court and put you in jail if you fail to comply.
This is a favorite method of dealing with scofflaws with offshore asset protection schemes. Martha Stewart didn’t go to jail for stock fraud, she went to jail for lying to investigators. If they can’t get you one way, they get you another way. However if there is an “innocent” second party to the LLC who will be hurt by selling the assets of the LLC, the judge most likely won’t do this. Your normal charging order protection and separation of personal and LLC assets comes into play at this point.
This is an ongoing concern of mine. My LLC is H/W owned and holds “safe” assets. I have to think of a way to solve the issue that you described. Any ideas from your perspective? For example, would a 1% interest to my Mom or other trustable family member (who would live out of state and would be passive) solve the problem? For the record, legitimate debts I would pay. But a Judge is the one that decides what is legitimate or not and that is where the dissagreement starts leading to the eventual litigation.
I assure you there’s no scheming here, that’s why I asked the simple question. How did this provoke a conversation about Judges, schemes and judgments.
I’m forming an LLC to flip properties through…that’s all.
Your idea of using a trusted family member (not a spouse) seems right to me and is worth pursuing. Of course, check with an attorney before you count on this.
Two of my favorite LLC books:
“How to Use Limited Liablility Companies & Limited Partnerships” by Garrett Sutton Esq and
“Asset Protection: Concepts & Strategies for Protecting Your Wealth” by J.D. Adkisson and Christopher M. Riser
The first book is $13.57 on Amazon.com. The second is pricier at $34.65 on Amazon.com. Perhaps you can just read them at the library. Most libraries can order any book in the local system.
Adkisson discusses Re:Albright (Bkrpt. Colo. April 4, 2003)which concerns a single member LLC and bankruptcy. Pages 219 to 221 in specific.