By: Amanda Wilson
One of the great features of corporations is that liability in the corporation generally does not extend to its shareholders, including tax liability. Like any rule, though, there is almost always an exception. In this case, the exception can be brutal.
By: Amanda Wilson
Many private companies utilize S corporations in their ownership structure, as they provide beneficial tax treatment. In order to qualify as an S corporation, the corporation can have only certain types of shareholders. Specifically, a partnership cannot be a shareholder. Yesterday, someone asked me whether a single member LLC could be a shareholder. The answer should be yes, as the LLC is treated as though it does not exist for tax purposes. Private guidance indicates that the IRS agrees with this answer.
By: Jim Hoctor
Just like a corporation, a limited liablity company can have non-voting interests. Non-voting interests are often used in LLC’s formed for family investments or when interests are given or sold to employees of the LLC. An important benefit of making these interests non-voting is that non-voting members don’t have “appraisal rights.” Under the Florida LLC act, appraisal rights give a dissenting voting member the right to force a court action to determine the value of his or her interest and require the company to purchase the interest based on that value. The new Florida limited liability company act has added the sale of all or substantially all of a LLC’s assets as an event that triggers appraisal rights. Previously, the only transactions that triggered appraisal rights for members of a Florida LLC were a merger or a conversion. Therefore, it is now even more important to consider using non-voting interests in Florida LLC’s.
If you are an employee of a company for which you are also an owner, you should consider reviewing your current compensation for its reasonableness. It is very common for small businesses to be formed as Subchapter S corporations. In these types of business, owners are also often employees of the business. The owners may be willing to take a smaller salary because they will eventually receive the business profits anyway. If this describes your business, be careful. The Internal Revenue Service continues to focus on whether compensation paid to employee owners is fair and reasonable when auditing small businesses, particularly S corporations.
