| Protect Your Shares. In our last blog, we showed how | | | | is concerned, the single member LLC does not exist |
| to Protect your Corporation with an LLC if you | | | | for tax purposes even though it exists as a legal entity |
| operate your business as a regular C corporation. One | | | | under state law. |
| of these methods is to have an LLC own all of your | | | | Single Member LLC. Well then, could you have a single |
| shares in your C Corporation; such LLCs can have | | | | member LLC own the shares in an S Corporation, |
| more than one member. You benefit from this | | | | have the LLC disregarded, and treat the human being |
| because there is no real protection against a creditor | | | | who owns 100% of the LLC shares as a human being |
| getting a court order to seize your shares in a | | | | that owns the S shares? The IRS has said yes in |
| Corporation. In contrast, your membership interest in | | | | several private letter rulings. A private letter ruling is |
| certain LLCs in Virginia, Delaware and some other | | | | where someone writes to the IRS for a ruling on their |
| states and countries should be protected against court | | | | situation. The ruling protects the persons who got the |
| seizure and sale. | | | | IRS blessing, but no one else. However, this has been |
| S. Corporation. The S Corporation is designed for the | | | | a consistent position in several of these rulings and the |
| small business where the owners want to avoid the | | | | logic of this is very sound. So check with your tax |
| double tax of the C Corporation. Under normal | | | | advisor, but one way you could increase the |
| circumstances, an S Corporation pays no tax. Instead, | | | | protections of your shares in your S Corporation is to |
| all of the income and most of the deductions usually | | | | have them owned by a single member LLC. One letter |
| flow though to the owners of the S Corporation. This | | | | ruling even approved of a limited partnership owning S |
| means an annual savings of 15% or more of federal | | | | shares where the general partner was a single |
| taxes on each dollar earned. | | | | member LLC owned by X and X was the only limited |
| Real People Are Owners. The S Corporation comes | | | | partner. For tax purposes, the limited partnership was |
| with a lot of restrictions. The government does not | | | | ignored, but should be treated as a limited partnership |
| want large corporations to use S Corporations to | | | | under state law. |
| avoid paying corporate taxes. This means that the | | | | Cautions. Single member LLCs may offer less |
| shares in S Corporations can only be owned by a | | | | protection than multimember LLCs. Also, if you forget |
| human being or certain trusts for human beings. | | | | and bring in another person (who is not a spouse) as a |
| Shares in S Corporations can not be owned by C | | | | member of the LLC, you will immediately blow your S |
| Corporations or partnerships or by many LLCs. So | | | | election because now a real partnership owns the S |
| how can we use an LLC to protect your S | | | | Corporation. |
| Corporation stock? | | | | IRS Circular 230 Disclosure. IRS rules impose |
| Vanishing LLCs. Current tax regulations allow you to | | | | requirements concerning any written federal tax |
| "check the box" as to whether you want your new | | | | advice from attorneys. To ensure compliance with |
| business to be taxed under the partnership or the | | | | those rules, we inform you that any U.S. federal tax |
| corporate rules. A partnership means there are two or | | | | advice contained in this communication (including any |
| more partners. You can not have a partnership with | | | | attachments) is not intended or written to be used, and |
| only one owner. You can have a Corporation and also | | | | cannot be used, for the purpose of (i) avoiding |
| an LLC with only one owner. IRS regulations say that | | | | penalties under federal tax laws, specifically including |
| where you have only one owner, called a single | | | | the Internal Revenue Code, or (ii) promoting, marketing |
| member LLC, the "LLC" is a "disregarded entity" for | | | | or recommending to another party any transaction or |
| tax purposes. This means that as far as the tax man | | | | matter addressed herein. |