Do distrubutions from an LLC really have to be equal to all members?
And what about payroll?
In this audio snippet, you'll hear about:
- LLC is does not – it is in accordance with the operating agreement.
- LLC has flexibility to have exotic distributions
Audio Transcript
Travis:
Do distributions from an LLC really have to be equal to all members, and what about other payroll?
Yosef:
OK. In an LLC, the distributions do not have to be equal to members. It
will have to be in conformance or in accordance with the LLC operating
agreements.
Travis:
OK.
Yosef:
Generally, one of the reasons why you have an LLC to begin with is that
the LLC provides you with the flexibility of having, sometimes, some
very exotic distribution direction.
Travis:
All right.
Yosef:
So pretty much, you don't necessarily have to. In fact, it's quite
possible that certain solid investors might be entitled to a preferred
rate of return before managing members get any return on their money at
all.
Travis:
[laughs] And I imagine that payroll really just varies. Whatever you
are going to pay somebody, you are going to pay somebody.
Yosef:
Payroll issues are going to vary based on the nature of the
distribution. For example, if the LLC is structured to give the
investors a preferred rate of return first, then the managing member
would get a share of the profits. That profit–sharing interest might be
construed as pure compensation, and he'd have to be getting a W–2.
Again, this is where having a good tax attorney is essential.
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