One Horrible Mistake You Can Make With Your LLC Ownership


There’s a good way and a bad way to give someone an ownership percentage in your LLC. Unfortunately the bad way is often employed by inexperienced LLC owners and leads to all sorts of problems later on down the line. That’s why it’s a really good idea to get your tax advisors involved at the beginning of the formation of your LLC, as they can help you bring everyone into the LLC safely and without triggering any negative tax consequences. Unless you’re an expert, it’s wise to take the advice of people with the expertise so you don’t run into challenges later on.

All of the Member Interests you issue after forming your LLC should to be exchanged for some other kind of commodity. It’s a very bad idea to issue Certificates until you have been paid in full.

You NEVER get something for nothing. Giving someone membership interests can have tax and other consequences. Always have some kind of consideration before ownership needs change hands.

The best time to give someone ownership in your LLC is in the early stages – ideally before any major assets have been transferred in.
If you simply give someone Member Interests in your LLC you may wind up accidentally triggering a tax bill for that person. That’s because the interest could be looked at as taxable income by the IRS. For example, say you’ve got an LLC with a piece of real estate in it that’s worth about $260,000. You want to give a 25% share in the LLC to your brother – which is equivalent to $65,000. Unless you make the transfer properly, you could inadvertently give your brother a tax bill on that $65,000.

There are many variables when you’re structuring a business. That’s why it’s hard to go through a quick-service website. Unless you talk to someone who’s got some knowledge and experience on both the tax and the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.

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