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  • LLC without employees?

    Dear professionals:

    Can an LLC be formed/runned without any employees? Even without CEO? If so, then do owners (members) have the legal right of signing contracts?

    Alex

  • #2
    Sure, an LLC can do business with nothing but the members of the LLC doing the work.

    As for who can legally bind the LLC, I don't know.
    Senior Professional in Human Resources and Certified Staffing Professional with over 30 years experience. Any advice provided is based upon experience and education, but does not constitute legal advice.

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    • #3
      Originally posted by ScottB View Post
      Sure, an LLC can do business with nothing but the members of the LLC doing the work.

      As for who can legally bind the LLC, I don't know.
      Do members count as "empoyees" of the company, in this case? When members of a such company receive money from operating activities, does this money count as their wages or simply dividends?

      My main point is that - can I be a sole member of an LLC, do all the business, sign contract, but at the same time receive no formal wage, not be enrolled as an employee of the company, and simply be defined as a "passive" investor?

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      • #4
        Originally posted by IGDark View Post
        Do members count as "empoyees" of the company, in this case? When members of a such company receive money from operating activities, does this money count as their wages or simply dividends?

        My main point is that - can I be a sole member of an LLC, do all the business, sign contract, but at the same time receive no formal wage, not be enrolled as an employee of the company, and simply be defined as a "passive" investor?
        Are you WORKING in the business or simply an investor?

        As I understand it, the IRS takes a real dim view of folks working for a business excluding themselves from FICA, regardless of how much or little their income from profits may be.

        You are not passive if you are making decisions on the part of the company.
        Senior Professional in Human Resources and Certified Staffing Professional with over 30 years experience. Any advice provided is based upon experience and education, but does not constitute legal advice.

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        • #5
          Originally posted by ScottB View Post
          Are you WORKING in the business or simply an investor?

          As I understand it, the IRS takes a real dim view of folks working for a business excluding themselves from FICA, regardless of how much or little their income from profits may be.

          You are not passive if you are making decisions on the part of the company.
          I want to be count as an investor for tax purposes, but at the same time control the company - hire employees, sign contracts, and make other managerial decisions. If a member does all that stuff, should he be identified as an employee and receive salary?

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          • #6
            IGDark: My main point is that - can I be a sole member of an LLC, do all the business, sign contract, but at the same time receive no formal wage, not be enrolled as an employee of the company, and simply be defined as a "passive" investor?

            No! Absent an election to be treated as a corporation (in which case you would have to file corporate tax returns and you would be considered a W-2 type employee of the business), a single member LLC is treated as being self-employed for tax purposes. All income & expenses should be reported on Sch C of Form 1040 - subject to income taxation. Your Sch C net income should also be reported on Schedule SE and subject to self-employment tax (e.g., social security & medicare)
            Barry S. Phillips, CPA
            www.BarryPhillips.com

            IRS Circular 230 Disclosure: This response is intended to provide general information and written for educational purposes only. It does not establish a client relationship. This communication is not intended to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to any party any matters addressed herein.

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            • #7
              Originally posted by IGDark View Post
              I want to be count as an investor for tax purposes
              For tax purposes, your involvement is unavoidable.

              The question is what should your tax liability be?

              As an investor only, you won't get tagged for FICA, Worker's Comp or Unemployment insurance. The employer portion of FICA, the WC and the UI are deductible expenses.

              You intend to have some involvement with the operations and should get some sort of compensation (taxable for FICA and UC, maybe not for WC).
              Rough guess, 10% of payroll, if you are on the payroll. The IRS wants you to pay yourself fairly for your job. LOL.

              You probably should seek the advice of a tax attorney or CPA. I am not allowed to make any recommendations for those.
              Senior Professional in Human Resources and Certified Staffing Professional with over 30 years experience. Any advice provided is based upon experience and education, but does not constitute legal advice.

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              • #8
                Originally posted by BSPCPA View Post
                No! Absent an election to be treated as a corporation (in which case you would have to file corporate tax returns and you would be considered a W-2 type employee of the business), a single member LLC is treated as being self-employed for tax purposes. All income & expenses should be reported on Sch C of Form 1040 - subject to income taxation. Your Sch C net income should also be reported on Schedule SE and subject to self-employment tax (e.g., social security & medicare)
                Will anything change if I find a business partner? You see, I'm not legally allowed to be employed due to my visa status (F-1). However, I can register a company and be an investor. On this forum, I'm trying to figure out to what extent can such an investor control the company he owns. I intend to hire employees, but I don't want to hire a CEO to do the stuff I beleive I can do better.

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                • #9
                  You need to consult with a CPA, tax attorney, and/or immigration attorney to review the specifics of your situation.
                  Barry S. Phillips, CPA
                  www.BarryPhillips.com

                  IRS Circular 230 Disclosure: This response is intended to provide general information and written for educational purposes only. It does not establish a client relationship. This communication is not intended to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to any party any matters addressed herein.

                  Comment


                  • #10
                    Originally posted by BSPCPA View Post
                    You need to consult with a CPA, tax attorney, and/or immigration attorney to review the specifics of your situation.
                    Didn't I say that?
                    Senior Professional in Human Resources and Certified Staffing Professional with over 30 years experience. Any advice provided is based upon experience and education, but does not constitute legal advice.

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                    • #11
                      I have consulted 2 lawyers already, but all they could tell me - register the company on you and find an external CEO to conduct the business. After this, I found out that an LLC can be managed solely by its members. So now I'm wondering whether the members of such LLC have to be on the payroll. And if they are not, and the company still generates revenue which is then goes to members' pockets in a form of dividends(?), will the members be questioned by IRS? Is this situation uncommon?

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                      • #12
                        I know of no reason why the owners MUST be on the payroll.

                        If they are not running the day to day operations of the company, but have someone else doing that, I see nothing wrong with the owners taking the profit or loss.
                        Senior Professional in Human Resources and Certified Staffing Professional with over 30 years experience. Any advice provided is based upon experience and education, but does not constitute legal advice.

                        Comment


                        • #13
                          Originally posted by ScottB View Post
                          I know of no reason why the owners MUST be on the payroll.

                          If they are not running the day to day operations of the company, but have someone else doing that, I see nothing wrong with the owners taking the profit or loss.
                          But does an LLC have to have a CEO to run the business? Is it possible for an LLC to be composed of members and employees none of which is registered as a CEO?

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                          • #14
                            Originally posted by IGDark View Post
                            But does an LLC have to have a CEO to run the business? Is it possible for an LLC to be composed of members and employees none of which is registered as a CEO?
                            I know of no requirement to register CEO's. My state requires our S Corporation to list the members of the Board of Directors, but it does not apparently care who runs the company.
                            Senior Professional in Human Resources and Certified Staffing Professional with over 30 years experience. Any advice provided is based upon experience and education, but does not constitute legal advice.

                            Comment


                            • #15
                              Originally posted by ScottB View Post
                              I know of no requirement to register CEO's. My state requires our S Corporation to list the members of the Board of Directors, but it does not apparently care who runs the company.
                              But if a company has no CEO, then who else has the right of signing contracts?

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