Last Updated on July 14, Robert Farrington 44 Comments We may receive compensation from affiliate links in this article. Have you ever wanted to invest with a partner, or with an investing club? Or maybe you have a bunch of family members that want to pool their money together to invest. One of the best ways to do this is by setting up an LLC for investing. An LLC is a limited liability company, and it can be a vehicle for a lot of purposes.

One of the more interesting uses of an LLC is to allow groups of people to pool their money together to invest. Here's why and how you might want to consider setting up an LLC for investing. The strength of using an LLC for investing comes from the LLC operating agreement. The LLC operating agreement describes what can and cannot be done in the LLC.

As such, it works very well for setting up an investing vehicle for multiple people or parties. For example, a common provision in the LLC operating agreement is how individuals can sell their shares in the company. Typically, when you setup an LLC for investing, you forbid other members from selling their shares in the LLC without other member's permission.

This will prevent changes in the ownership structure without all members agreeing. Since many LLCs are setup for families, this keeps the ownership of the LLC in the family. Another common provision is defining how the money in the LLC will be invested. Having a solidified plan and structure makes it easier to have consensus across all parties.

Finally, some operating agreements may require members to make regular contributions to the LLC. This keeps all club members vested in the club and the LLC. You may not realize this, but many wealthy individuals use LLCs to invest.

For example, Wal-Mart's largest shareholder is Walton Enterprises LLC. This is the LLC formed by the Walton family to control ownership of Wal-Mart. The Walton Enterprises LLC has 6 known members, the heirs to Sam Walton's empire. However, most of this wealth is tied up in the LLC. In turn, the LLC owns assets like Wal-Mart, and several other smaller companies. Bill Gates is another famous individual that holds most of his wealth in an LLC. He owns Cascade Investment LLC, which controls his remaining stakes in Microsoft and other investments that he makes.

Anyone can setup an LLC for investing pretty easily. They key is to make sure that all members of the LLC agree on the operating agreement, which are the terms by which the LLC will operate. If you want to setup an LLC for investing, I recommend Nolo. It's the company that I used to setup my LLC and I've been very happy with them. Their prices are reasonable, and their support is great.

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It will take you about an hour to setup your LLC for investing with Nolo. Then, Nolo will file your paperwork with your state, and you should be official in a few weeks or months depending on your state. Once you have your LLC paperwork, you need to open a brokerage account in the name of the LLC.

I recommend using Scottrade to open your LLC investing account. They will then ask you for the information from your LLC operating agreement, and they will also want a copy of it when you're done applying. This is also an account that you typically can't just open online, but you can get the investing account open very quickly once you send in your LLC operating agreement.

I would estimate you would be good to go in about a week. Want other options for companies to open an LLC for investing at? Check out this list of the best deals for opening up an brokerage account:. If you want the full list, check it out here. Do you use an LLC for investing? Have you considered opening an account with friends or family?

Join 10, others who've taken our FREE video training program to learn how to get started investing today! Investing , Investing Accounts , Investment Account , llc , LLC for Investing. Robert Farrington is the founder and editor of The College Investor , a personal finance site dedicated to young adult and college student finances. You can learn more about him here.

July 5, at 4: Wow, I had never thought of such an idea. Really interesting, certainly a safe way to approach investing with friends or family! July 8, at 3: Is there any reason to create an investment LLC other than as an investment vehicle of multiple people? July 9, at 9: Tax implications are pretty much the same for individuals regardless of how you structure the partnership.

May 6, at LLCs can be taxed as corporations. Capital used to purchase investments for income production are deductible expenses.

But, at least some of that deduction should offset income, reducing tax liability to potentially nothing. This is especially true if capital injections happen routinely. The LLC can also retain earnings and abstain from paying dividends- when taxed as a corp- allowing LLC members to avoid the pass through tax effect. In effect this would create a tax free investment vehicle at least until there is serious income generation….

You should talk to a tax professional for the implications of electing to be taxed as a corporation. Most use an LLC for investing for the liability protection and organization. May 10, at 8: Do you know whether you can run investment expenses directly through the LLC and what filings would be needed? Best to speak with an accountant and an attorney. May 18, at If you set up an LLC for investing, can you get anybody to donate to your fund or just the original members? May 18, at 5: July 13, at 6: This was a very good read.

Before reading your article I was looking a setting up a corporation for investing purposes. Are you familiar with the differences if any of setting up a corporation versus a LLC? If so, which would you recommend and why? July 19, at 5: I BELIEVE consult an accountant and attorney an LLC allows you to write off interest margin expenses and things like business cell phones and internet lines as expense, yet still count the gains as capital gains.

An LLC also shelters you from stuff like blowing out your margin account. With a C-Corp you can hire family members and pay them out of profits. You can also pay for business travel and give everyone healthcare and retirement k perks.

The problem with a C-Corp is you pay corporate income taxes on all your investment gains and then if you pay yourself a salary you essentially get taxed TWICE. If you pay yourself a dividend you still get taxed 2x, but at a lower rate. Essentially an LLC is superior in just about every way. The owner is at fault in accident, the injured party and his Lawyer are going to want more than the insurance co pays.

If your liquid assets are in an LLC, it should give them pause. May 10, at Possibly, but you have to remember that the owner does personally own shares in the business just like a stock. As such, if the owner is sued directly, the ownership of the business could be an asset that could be considered by a judge.

The smarter way to do it is to have a trust own the shares of the LLC. Then you are more protected. June 10, at 2: I was wondering what the tax benefits are of using an LLC? The 10k triggers the IRS to look at the account. You spend all that money on stocks and maybe you get money back but keep spending it on stocks.

In your experience can You write off everything you spend? Or do you have to save some off to the side? Also can you pay taxes quarterly if one chooses?

June 10, at 7: However, in the investing context, that might not make much sense. As for the books, you only pay tax on your gains, and you can choose to pay taxes quarterly, but it rarely makes sense for an individual investor that has a full time job. Also I wanted to know how registering in another state works? I read somewhere you have to have an office in that state to register your LLC with the Secretary of State.

I know there are fee benefits for being in certain states. There are fee benefits, but setting it up out of state can get expensive and usually washes the benefit or close to washes. June 11, at 1: So when you say I pay taxes on my gains, does this mean that if 10k showed up in my LLC bank account but I never brought it to my personal account, that would be considered a gain?

Then I would be taxed from the whole thing? I care to invest and reinvest. Do you know any good books or articles so that I can learn how to structure it for my specific needs? June 11, at 8: June 12, at That bank account belongs to my LLC with the goal of having some sort of tax benefit. It seems really really difficult to find out what the tax benefits are no matter which books I read or other knowledgable people who say tax benefits exist.

The plan is to invest. Are there taxes on that 10k upon hitting the bank account? Knowing People who work at banks and other people who invest, they say 10k and over gets reported to IRS immediately. Next scenario, I take the 10k and invest it and the account goes to 0 in balance.

Is this all considered income even know it never went to my personal bank? Or is considered business expenditures? Where is the line of taxes involved and when does it occur? Does that make more sense? June 13, at 1: Yea that makes more sense.

This is not a hypothetical scenario. Everything I described really has happened in my life, so the answers mean a lot to me And so I want to thank you for being helpful. So upon capital contributions hitting the LLC bank account that is not taxable. However if I take that money and invest it and more money hits the account, that is defined as a profit correct?

June 13, at 6: June 14, at 3: June 15, at 9: Everything you do in the LLC passes through to you on your tax return. June 22, at 5: June 23, at 8: It depends on your elected tax structure, but typically everything passes through just like you personally owning the losses. July 6, at 5: I emailed Schwab about investing via an LLC. July 22, at Hello I have a question. If I set up an LLC for investments stocks and real estate can I re-invest profits and count them as expenses? Lets say I have a rental house and after six months I take the profits from the rental and invest them in stocks in the LLC brokerage account.

Can that count as an expense for my LLC or do I have to pay taxes on them first? Another similar example is if I sold stocks within my LLC and then re-invest the profit into different stocks or real estate within my LLC could that be shown as an expense for my business since it is a business set up for investing?

July 23, at 9: The expense would be any loss you take, not simply the act of investing. August 24, at 4: August 24, at September 8, at Can someone set up a LLC that is structured to let others buy shares of ownership? On the weekends I mow lawns and do lots of odd jobs. I wanted to set up a LLC so that I can start a legitimate lawn service and junk removal company.

If I invest profits from my operations into stocks and bonds under the LLC can I sell private shares of my LLC? If not shares could I sell percentages of equity? This all comes about because a small group of my family is setting up a Investment Club and before I read this article I was trying to think of ways the club could make money to invest and tying that into the part time work I do on the weekends.

September 10, at 4: Yes, you can sell shares of your LLC, regardless of what the LLC does. You spell out how to buy and sell shares in the LLC agreement. This is a common way that many people create investment clubs, own real estate, etc. October 26, at 5: To set up a LLC for Brokerage account, what kind of specific lawyer should it be best to contact?

October 26, at 8: November 18, at 9: It depends on how you elect your LLC to be taxed. Single member LLCs typically are taxed as a sole proprietor, unless you opt to change it. February 19, at 7: After discussed with my friends of your article, we would like to setup a LLC for our investment.

However, some people live in California some people live in Texas. So where which state should we setup our LLC? February 19, at 9: You should talk to an attorney, but my initial guy is Texas because they have cheaper filing fees. Also, your Texas friends need to remember that Texas does charge a state income tax on earnings from the LLC — so they will need to file a state income tax return.

March 17, at 3: Or do i have to open business brokerage account under LLC name? June 1, at 7: Four members of my family establish an LLC, fund it with personal after-tax money, then purchase a dividend-paying stock.

June 1, at In your example, if they all have equal shares, they would each receive a K-1 showing: Your email address will not be published.

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Setting Up an LLC for Investing Last Updated on July 14, Robert Farrington 44 Comments We may receive compensation from affiliate links in this article.

Want To Learn How To Invest? Comments Ben YoungMoneyFinance says July 5, at 4: You would need to consult an attorney and an accountant.

Robert, This was a very good read. Thank you in advance for your time sir! Hey Robert, I was wondering what the tax benefits are of using an LLC? If you do have to have an office do you know an easy way to get around this? Ooh ok got it.

Thank you for making it that clear. What if I leave money in the account? Can I be taxed on that? Thanks for any help.

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That sounds a bit complicated. You should probably talk to a lawyer that specializes in it. You need to open a brokerage with the LLC name on it. For an LLC, all members receive their share of profits and expenses. Leave a Reply Cancel reply Your email address will not be published. Ultimate Guides The Definitive Guide To Student Loan Debt Student Loan Forgiveness Programs by State The Ultimate IRA Contribution Guide The Ultimate Guide to Saving For Retirement The Ultimate College Internship Guide.

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