Q: Should I form an MMLLC or MMLLC taxed as S corp to stay limited partner?

A: Forming an LLC and then electing Subchapter S status offers advantages over forming a corporation and then electing S status, particularly in terms of flexibility, ease of formation, and potentially lower overall administrative costs. While both structures provide similar tax benefits (pass-through taxation, avoiding double taxation), LLCs offer greater flexibility in management, ownership, and distribution of profits and losses, making them a more versatile choice for many small businesses.

A: If you want to transition to a limited partner role while maintaining control of your business, forming an MMLLC (Manager-Managed Limited Liability Company) is a good option. This structure allows you to remain a limited partner, meaning you won’t be involved in the day-to-day management, while someone else can take on the role of the manager. In this setup, your liability protection remains intact, as an LLC provides personal liability protection for its members.

To maintain majority control, you can structure the MMLLC so that you own the majority of membership interests, while the manager is responsible for operations. Additionally, you can set up your LLC to be taxed as an S Corporation, which can provide tax benefits, particularly if your income passes through to your personal tax return. This structure allows for a self-employment tax savings, as only salaries (not distributions) are subject to self-employment taxes.

The main considerations are ensuring that the LLC is managed correctly and that your ownership structure supports your goal of majority control. If you’re unsure about the best structure for your situation, it may be helpful to consult with a tax advisor or legal professional who can help you navigate the complexities of LLC formation, tax elections, and maintaining liability protection while transitioning into a limited partner role.