Q: LLC Agreement language that assigns 50% of Member ownership to someone, but 0% of expenses on their K-1.
Below is my exchange with the CPA. I'm looking for LLC Operating Agreement language that achieves this (my lawyer doesn't know how):
Me: I am giving 50% of the LLC's equity to someone else, but I will be the one fully funding the operations of the business with my own cash. Is there a way for me to enjoy 100% of the expensing benefit on the K-1 despite only owning 50% of the LLC equity?
CPA: Yes, depending on your LLC Operating Agreement, the other person can own 50% of equity, but you could still own 100% of income/expenses.
Me: So if I'm understanding this correctly, the Operating Agreement can make it such that he and I are 50/50 equity partners, but that the income/expenses are all "owned" by me. This would mean that a K-1 would be irrelevant for him, right? Since he'd own 0% of the income/expenses?
CPA: Correct, except he would still get a K-1. His K-1 just wouldn't contain any income/expense items. Your K-1 would include 100% of the income/expenses.
A: A competent attorney will be able to draft such an LLC operating agreement. The rules for LLC's are purposely very flexible.
Justia Ask a Lawyer is a forum for consumers to get answers to basic legal questions. Any information sent through Justia Ask a Lawyer is not secure and is done so on a non-confidential basis only.
The use of this website to ask questions or receive answers does not create an attorney–client relationship between you and Justia, or between you and any attorney who receives your information or responds to your questions, nor is it intended to create such a relationship. Additionally, no responses on this forum constitute legal advice, which must be tailored to the specific circumstances of each case. You should not act upon information provided in Justia Ask a Lawyer without seeking professional counsel from an attorney admitted or authorized to practice in your jurisdiction. Justia assumes no responsibility to any person who relies on information contained on or received through this site and disclaims all liability in respect to such information.
Justia cannot guarantee that the information on this website (including any legal information provided by an attorney through this service) is accurate, complete, or up-to-date. While we intend to make every attempt to keep the information on this site current, the owners of and contributors to this site make no claims, promises or guarantees about the accuracy, completeness or adequacy of the information contained in or linked to from this site.
