Hi Lee Phillips here.
I want to talk today about
who owns a limited liability company
who owns an LLC
and it's a question that I get quite often
and it's kind of a "Well, duh"
the owners own the LLC
yeah that's true
but
who are the owners?
In an LLC we don't call them owners
we don't call them "shareholders" like we do in a corporation
we call them "members"
they're members
they're not partners
they're members
and those are the guys who own it.
So who can own the LLC?
Maybe that's a better question.
The fact of the matter is, is it depends upon how the LLC is taxed
as to who can own it.
If it's a single owner
taxed as a disregarded entity or a sole proprietorship
then you are going to own it.
Now wait wait wait wait
maybe we don't want you to own it
maybe we want your living revocable trust to own it
because if your living revocable trust owns it
then your family doesn't have to probate it when you die.
So in the back of your mind, and I'm gonna go fast
think
when I say you own it
no no, you, you don't actually own it
your living revocable trust owns it
but for practical purposes
for legal purposes
for tax purposes
you are your living revocable trust.
So if it's one guy
one living revocable trust
you
then you have it taxed as a sole proprietorship
and then if you're going to tax it as a partnership
you can basically have anybody you want
own a partnership interest
be a member.
If it's taxed under subchapter S
you've got to follow the subchapter S rules as to who owns it.
The short story is,
is that subchapter S requires basically that a warm-blooded American citizen
owns it.
Now we can get green card holders and we can get a bunch of things
but you can't have another LLC
or a corporation
or another entity
own an interest in an LLC or a corporation
that's taxed under subchapter S of the IRS code
there are very specific rules
you can only have a limited number
when I started out I think was like 20
yeah sure yeah
I think it's more like 150 now
that tells you how old I am
yes and my phone is on, I apologize
You've got the 150 that
or whatever it is today
that a subchapter S entity
can actually have as the owners
and they have to be people
because the IRS wants to make sure that they can find that person
and get that person taxed
as an owner or a member
of the LLC.
If it's taxed under Chapter C
of the IRS code that's the same as the C corporation
that's the same as
IBM, Ford
all the rest of these guys
and you can have as many
members or owners as you want
you can sell stock on the stock exchange if you register it and do all that stuff
so who is the owner of an LLC
depends upon how the LLC is taxed.
Generally you're gonna be the owner
actually you're not
your living revocable trust is
and that's the way
the vast majority of LLC's are set up
by the way one one more thing
I said that if it's taxed under subchapter S
and you may want your little LLC taxed under subchapter S
if you are earning earned income
you're selling goods or services, basically
then you want it taxed
probably
under subchapter S
there's some big tax advantages
and we talk about those in other videos that we have
but
can your living revocable trust own the membership interest
if it's taxed under subchapter S?
I just told you
that it had to be a warm blooded American citizen
and then I told you earlier that your living a revocable trust for legal and everything else is you
so can your trust own the stock
the membership interests
in the LLC
that's taxed under subchapter S?
The answer is yes, IF
it meets what we call
if it's a qualified subchapter S trust
and it has to meet, I think seven criteria
basically you have to get all the income from it
and it has to be paid out at least annually.
So if your trust is properly written
and meets these criteria
then your trust can even own
your membership interest
in an LLC taxed under subchapter S.
Lee Phillips talking about
who owns an LLC
who owns a limited liability company